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: | Xu Xiaowei, Hopp Wallace J |
Keywords: | pricing |
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.