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Simple policies for dynamic pricing with imperfect forecasts. (English) Zbl 1273.91187
Summary: We consider the “classical” single-product dynamic pricing problem allowing the “scale” of demand intensity to be modulated by an exogenous “market size” stochastic process. This is a natural model of dynamically changing market conditions. We show that for a broad family of Gaussian market-size processes, simple dynamic pricing rules that are essentially agnostic to the specification of this market-size process perform provably well. The pricing policies we develop are shown to compensate for forecast imperfections (or a lack of forecast information altogether) by frequent reoptimization and reestimation of the “instantaneous” market size.

MSC:
91B24 Microeconomic theory (price theory and economic markets)
90C39 Dynamic programming
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