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Dynamic pricing and inventory control with nonparametric demand learning

Dynamic pricing and inventory control with nonparametric demand learning This paper studies joint dynamic pricing and inventory planning with demand learning. Demand is assumed to be a function of price with an uncertain price-sensitivity parameter. We introduce a nonparametric functional-coefficient autoregressive (FAR) state-space model without assumptions on the parametric structure and apply a Bayesian method using Markov chain Monte Carlo (MCMC) algorithms to estimate model parameters. We develop an optimal control model and obtain optimal pricing and inventory plan based on the estimated parameters. We use numerical computations with single and dynamic replenishment policies to evaluate the proposed demand learning algorithm and optimal control based methods and demonstrate the importance of dynamic pricing, inventory control, and demand learning. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Services Operations and Informatics Inderscience Publishers

Dynamic pricing and inventory control with nonparametric demand learning

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Publisher
Inderscience Publishers
Copyright
Copyright © Inderscience Enterprises Ltd. All rights reserved
ISSN
1741-539X
eISSN
1741-5403
DOI
10.1504/IJSOI.2011.041421
Publisher site
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Abstract

This paper studies joint dynamic pricing and inventory planning with demand learning. Demand is assumed to be a function of price with an uncertain price-sensitivity parameter. We introduce a nonparametric functional-coefficient autoregressive (FAR) state-space model without assumptions on the parametric structure and apply a Bayesian method using Markov chain Monte Carlo (MCMC) algorithms to estimate model parameters. We develop an optimal control model and obtain optimal pricing and inventory plan based on the estimated parameters. We use numerical computations with single and dynamic replenishment policies to evaluate the proposed demand learning algorithm and optimal control based methods and demonstrate the importance of dynamic pricing, inventory control, and demand learning.

Journal

International Journal of Services Operations and Informatics – Inderscience Publishers

Published: Jan 1, 2011

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