Active Learning and Dynamic Pricing Policies

Vázquez Gallo, María Jesús and Estévez, Macarena and Egido, Santiago (2014). Active Learning and Dynamic Pricing Policies. "American Journal of Operations Research" (n. 4); pp. 90-100. ISSN 2160-8849.


Title: Active Learning and Dynamic Pricing Policies
  • Vázquez Gallo, María Jesús
  • Estévez, Macarena
  • Egido, Santiago
Item Type: Article
Título de Revista/Publicación: American Journal of Operations Research
Date: 2014
Faculty: E.T.S.I. Civil (UPM)
Department: Ingeniería Civil: Hidráulica y Ordenación Del Territorio
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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In this paper, we address the problem of dynamic pricing to optimize the revenue coming from the sales of a limited inventory in a finite time-horizon. A priori, the demand is assumed to be unknown. The seller must learn on the fly. We first deal with the simplest case, involving only one class of product for sale. Furthermore the general situation is considered with a finite number of product classes for sale. In particular, a case in point is the sale of tickets for events related to culture and leisure; in this case, typically the tickets are sold months before the event, thus, uncertainty over actual demand levels is a very a common occurrence. We propose a heuristic strategy of adaptive dynamic pricing, based on experience gained from the past, taking into account, for each time period, the available inventory, the time remaining to reach the horizon, and the profit made in previous periods. In the computational simulations performed, the demand is updated dynamically based on the prices being offered, as well as on the remaining time and inventory. The simulations show a significant profit over the fixed-price strategy, confirming the practical usefulness of the proposed strategy. We develop a tool allowing us to test different dynamic pricing strategies designed to fit market conditions and seller s objectives, which will facilitate data analysis and decision-making in the face of the problem of dynamic pricing.

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Item ID: 31108
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Deposited by: Memoria Investigacion
Deposited on: 06 Feb 2015 11:34
Last Modified: 06 Feb 2015 11:58
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