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.

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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.