Article ID: | iaor201111548 |
Volume: | 217 |
Issue: | 3 |
Start Page Number: | 580 |
End Page Number: | 588 |
Publication Date: | Mar 2012 |
Journal: | European Journal of Operational Research |
Authors: | Yan Hong, Cao Ping, Li Jianbin |
Keywords: | programming: dynamic, optimization, demand |
We consider a continuous time dynamic pricing problem for selling a given number of items over a finite or infinite time horizon. The demand is price sensitive and follows a non‐homogeneous Poisson process. We formulate this problem as to maximize the expected discounted revenue and obtain the structural properties of the optimal revenue function and optimal price policy by the Hamilton–Jacobi–Bellman (HJB) equation. Moreover, we study the impact of the discount rate on the optimal revenue function and the optimal price. Further, we extend the problem to the case with discounting and time‐varying demand, the infinite time horizon problem. Numerical examples are used to illustrate our analytical results.