Active Learning and Dynamic Pricing Policies

María-Jesús Vázquez-Gallo, Macarena Estévez, Santiago Egido

Conento S.L.U., Madrid, Spain.
Department Civil Engineering, Technical University of Madrid, Madrid, Spain.
Solute Ingenieros, San Sebastián de los Reyes, Madrid, Spain.

DOI: 10.4236/ajor.2014.42009                

Abstract

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.

Keywords

Dynamic Pricing; Demand Learning; Revenue Management

Conflicts of Interest

The authors declare no conflicts of interest.

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