Article ID: | iaor20123896 |
Volume: | 11 |
Issue: | 3 |
Start Page Number: | 303 |
End Page Number: | 318 |
Publication Date: | May 2012 |
Journal: | Journal of Revenue and Pricing Management |
Authors: | Gallego Guillermo, Talebian Masoud |
Keywords: | marketing |
We consider a capacity provider who offers multiple versions of a single product, such as different seat locations for an event. We assume that the different versions share an unknown core value and command a known premium or discount relative to the core value. Customers arrive at an unknown arrival rate during a finite sales horizon. We assume that the provider has a prior knowledge on the arrival rate which is updated using Bayesian rule. Estimates of the core value are updated using maximum likelihood estimation. We show how to simultaneously estimate the unknown parameters as the sales evolve and how to price the products to maximize revenues under a rolling horizon framework.