Demand learning and dynamic pricing for multi-version products

Guillermo Gallego, Masoud Talebian
2010 Journal of Revenue and Pricing Management  
Extended Abstract Dynamic pricing deals with demand-management decisions and the required methodologies and systems for making these decisions. The demand function is an important element in such decision makings. While most papers assume that the provider is aware of the demand function, this is rarely the case in practice; indeed, market uncertainty is prevalent in most cases. This unrealistic assumption is one of the reasons that, despite the enormous amount of data made available to
more » ... makers, intelligent systems that balance the supply and demand and improve profits have found limited use in the industry. In addition to the manager's experience of the market based on historic sales, managers incorporate sales to update demand estimates. This is known as demand learning. A major source of motivation for this paper is the case of demand learning in the event management industry, where event tickets are priced over time and demand is uncertain. Events include, but are not limited to, sports, concerts, and theater shows. In particular, we consider tours of unique events that are organized in different cities. In these cases, uncertain demand plays a major role in decisions regarding new shows. In this business environment, capacity provider needs to learn two elements of demand: market size and the core value of the event, to properly price different variants of the product. Market size means the expected number of interested * The article is appearing Journal of Revenue and Pricing Management
doi:10.1057/rpm.2010.36 fatcat:conmvrvmqnbmhcff5wccarevr4