Price trends in a dynamic pricing model with heterogeneous customers: A martingale perspective

Price trends in a dynamic pricing model with heterogeneous customers: A martingale perspective

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Article ID: iaor200971645
Country: United States
Volume: 57
Issue: 5
Start Page Number: 1298
End Page Number: 1302
Publication Date: Sep 2009
Journal: Operations Research
Authors: ,
Keywords: pricing
Abstract:

This note describes probabilistic properties of optimal price sample paths in a dynamic pricing model with a finite horizon and limited stock. We assume that customer arrivals follow a nonhomogeneous Poisson process. We show that if customers' willingness-to-pay increases rapidly over time, then the optimal price process follows a submartingale, which implies an upward price trend. Alternatively, if customers' willingness-to-pay decreases rapidly over time, then the optimal price process follows a supermartingale, which implies a downward price trend.

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