Real-Time Dynamic Pricing with Minimal and Flexible Price Adjustment

Qi (George) Chen, Stefanus Jasin, Izak Duenyas
  • Management Science, August 2016, INFORMS
  • DOI: 10.1287/mnsc.2015.2238

Flexible and Minimally Invasive Dynamic Pricing

What is it about?

Dynamic pricing is prevalent. But challenges remain, both from the technical (e.g., time-consuming optimization) and practical implementation (e.g., customer perception, business constraints) perspectives. This paper provides a real-time algorithm that addresses these concerns, thus, making dynamic pricing more practically appealing.

Why is it important?

We show that monopolistic dynamic pricing is relatively easy to implement. For example, adjusting the prices of a very small subset of products is all that we need to enjoy pretty much most of the benefit of dynamic pricing---adjusting the prices of additional products will only give a marginal benefit. In addition, dynamic pricing can also be flexible, i.e., if the prices of some products cannot be adjusted due to certain business rules/constraints, we can still guarantee more or less similar performance by adjusting the prices of equivalent products. Thus, we have provided a first step toward developing a dynamic pricing heuristic that not only has a good theoretical performance but also is cognizant of real-world practical concerns.

The following have contributed to this page: Stefanus Jasin and Qi Chen