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Dynamic Pricing Problems with Elastic Demand

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Author Info

  • Grigoriev Alexander
  • Hiller Benjamin
  • Marbán Sebastián
  • Vredeveld Tjark
  • Zwaan Ruben van der

    (METEOR)

Abstract

We study a dynamic pricing problem for a company that sells a single product to a group of customers over a finite time horizon. These customers are price sensitive and the price of today influences the group of customers of tomorrow. The objective is to set the prices over time so as to maximize revenue. We study two customer models: a multiplicative and an additive model. Our main contribution is considering the case when the demand is deterministic. We give a polynomial time algorithm for the multiplicative model, and prove that the additive model is (weakly) NP-hard and allows a fully polynomial approximation scheme. Further, when the choice of prices is limited we prove that the optimal solution has a specific structure. Complementing the results for the deterministic setting, we finally provide two algorithms when the demand is stochastic.

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Bibliographic Info

Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 053.

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Date of creation: 2010
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Handle: RePEc:dgr:umamet:2010053

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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm

Related research

Keywords: operations research and management science;

This paper has been announced in the following NEP Reports:

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  1. Constantinos Maglaras & Joern Meissner, 2003. "Dynamic Pricing Strategies for Multi-Product Revenue Management Problems," Working Papers MRG/0002, Department of Management Science, Lancaster University, revised Nov 2005.
  2. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  3. Grigoriev, Alexander & Loon, Joyce van & Sviridenko, Maxim & Uetz, Marc & Vredeveld, Tjark, 2008. "Optimal Bundle Pricing with Monotonicity Constraint," Research Memoranda 015, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
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