Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand
We consider a dynamic pricing model for selling a given stock of a perishable product over a finite time horizon. Customers, whose reservation price distribution changes over time, arrive according to a nonhomogeneous Poisson process. We show that at any given time, the optimal price decreases with inventory. We also identify a sufficient condition under which the optimal price decreases over time for a given inventory level. This sufficient condition requires that the willingness of a customer to pay a premium for the product does not increase over time. In addition to shedding managerial insight, these structural properties enable efficient computation of the optimal policy. Numerical studies are conducted to show the revenue impact of dynamic price policies. Price changes are set to compensate for statistical fluctuations of demand and to respond to shifts of the reservation price. For the former, our examples show that using optimal dynamic optimal policies achieves 2.4--7.3% revenue improvement over the optimal single price policy. For the latter, the revenue increase can be as high as 100%. These results explain why yield management has become so essential to fashion retailing and travel service industries.
Volume (Year): 46 (2000)
Issue (Month): 3 (March)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gabriel R. Bitran & Susana V. Mondschein, 1997. "Periodic Pricing of Seasonal Products in Retailing," Management Science, INFORMS, vol. 43(1), pages 64-79, January.
- Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:46:y:2000:i:3:p:375-388. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.