A pricing problem under Monge property

A pricing problem under Monge property

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Article ID: iaor20091377
Country: Netherlands
Volume: 5
Issue: 2
Start Page Number: 328
End Page Number: 336
Publication Date: May 2008
Journal: Discrete Optimization
Authors:
Abstract:

We study a pricing problem where buyers with non-uniform demand purchase one of many items. Each buyer has a known benefit for each item and purchases the item that gives the largest utility, which is defined to be the difference between the benefit and the price of the item. The optimization problem is to decide on the prices that maximize total revenue of the seller. This problem is also called the optimal product line design problem in the absence of competition. Even though the general problem is known to be NP-hard, it can be solved efficiently under some natural assumptions on customer benefits. In this paper we study properties of optimal solutions and present a dynamic programming algorithm when customer benefits satisfy the Monge property. The same algorithm can also be used to solve the problem under the additional requirement that all buyers should be served.

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