A revisit to the markup practice of irreversible dynamic pricing

Research output: Contribution to journalArticle

Abstract

We consider an irreversible dynamic pricing situation in which a firm uses real-time inventory information to decide the most opportune time to raise its sales prices. Feng and Xiao (Oper Res 48:332–343, 2000b) has studied this problem along with the opposite markdown case. In quite symmetric fashions, they established the optimality of threshold policies for both cases. Though the earlier work has made dramatic advances in dynamic pricing and at the same time pioneered with many relevant techniques, we believe its treatment of the markup case warrants some revision. In particular, we find it is in possession of an erstwhile-unknown complementarity property between price flexibility and inventory, whose counterpart is not true for the markdown case. This property is needed in the derivation leading to the optimality of a threshold policy. Our development also allows demand to be time-dependent in a product form, and naturally leads to an efficient policy-computing algorithm.

Original languageEnglish (US)
JournalAnnals of Operations Research
DOIs
StateAccepted/In press - Jan 1 2019

Fingerprint

Markup
Dynamic pricing
Optimality
Complementarity
Property prices
Price flexibility
Warrants

All Science Journal Classification (ASJC) codes

  • Decision Sciences(all)
  • Management Science and Operations Research

Keywords

  • Dynamic pricing
  • Markup practice
  • Threshold policy

Cite this

@article{bf57c5e78526489db13b2564607bcc9e,
title = "A revisit to the markup practice of irreversible dynamic pricing",
abstract = "We consider an irreversible dynamic pricing situation in which a firm uses real-time inventory information to decide the most opportune time to raise its sales prices. Feng and Xiao (Oper Res 48:332–343, 2000b) has studied this problem along with the opposite markdown case. In quite symmetric fashions, they established the optimality of threshold policies for both cases. Though the earlier work has made dramatic advances in dynamic pricing and at the same time pioneered with many relevant techniques, we believe its treatment of the markup case warrants some revision. In particular, we find it is in possession of an erstwhile-unknown complementarity property between price flexibility and inventory, whose counterpart is not true for the markdown case. This property is needed in the derivation leading to the optimality of a threshold policy. Our development also allows demand to be time-dependent in a product form, and naturally leads to an efficient policy-computing algorithm.",
keywords = "Dynamic pricing, Markup practice, Threshold policy",
author = "Katehakis, {Michael N.} and Yifeng Liu and Jian Yang",
year = "2019",
month = "1",
day = "1",
doi = "10.1007/s10479-019-03438-1",
language = "English (US)",
journal = "Annals of Operations Research",
issn = "0254-5330",
publisher = "Springer Netherlands",

}

A revisit to the markup practice of irreversible dynamic pricing. / Katehakis, Michael N.; Liu, Yifeng; Yang, Jian.

In: Annals of Operations Research, 01.01.2019.

Research output: Contribution to journalArticle

TY - JOUR

T1 - A revisit to the markup practice of irreversible dynamic pricing

AU - Katehakis, Michael N.

AU - Liu, Yifeng

AU - Yang, Jian

PY - 2019/1/1

Y1 - 2019/1/1

N2 - We consider an irreversible dynamic pricing situation in which a firm uses real-time inventory information to decide the most opportune time to raise its sales prices. Feng and Xiao (Oper Res 48:332–343, 2000b) has studied this problem along with the opposite markdown case. In quite symmetric fashions, they established the optimality of threshold policies for both cases. Though the earlier work has made dramatic advances in dynamic pricing and at the same time pioneered with many relevant techniques, we believe its treatment of the markup case warrants some revision. In particular, we find it is in possession of an erstwhile-unknown complementarity property between price flexibility and inventory, whose counterpart is not true for the markdown case. This property is needed in the derivation leading to the optimality of a threshold policy. Our development also allows demand to be time-dependent in a product form, and naturally leads to an efficient policy-computing algorithm.

AB - We consider an irreversible dynamic pricing situation in which a firm uses real-time inventory information to decide the most opportune time to raise its sales prices. Feng and Xiao (Oper Res 48:332–343, 2000b) has studied this problem along with the opposite markdown case. In quite symmetric fashions, they established the optimality of threshold policies for both cases. Though the earlier work has made dramatic advances in dynamic pricing and at the same time pioneered with many relevant techniques, we believe its treatment of the markup case warrants some revision. In particular, we find it is in possession of an erstwhile-unknown complementarity property between price flexibility and inventory, whose counterpart is not true for the markdown case. This property is needed in the derivation leading to the optimality of a threshold policy. Our development also allows demand to be time-dependent in a product form, and naturally leads to an efficient policy-computing algorithm.

KW - Dynamic pricing

KW - Markup practice

KW - Threshold policy

UR - http://www.scopus.com/inward/record.url?scp=85074037300&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85074037300&partnerID=8YFLogxK

U2 - 10.1007/s10479-019-03438-1

DO - 10.1007/s10479-019-03438-1

M3 - Article

AN - SCOPUS:85074037300

JO - Annals of Operations Research

JF - Annals of Operations Research

SN - 0254-5330

ER -