A simulation-based algorithm for optimal pricing policy under demand uncertainty

Chakravarty, Saswata ; Padakandla, Sindhu ; Bhatnagar, Shalabh (2013) A simulation-based algorithm for optimal pricing policy under demand uncertainty International Transactions in Operational Research, 21 (5). pp. 737-760. ISSN 0969-6016

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Official URL: http://doi.org/10.1111/itor.12064

Related URL: http://dx.doi.org/10.1111/itor.12064

Abstract

We propose a simulation‐based algorithm for computing the optimal pricing policy for a product under uncertain demand dynamics. We consider a parameterized stochastic differential equation (SDE) model for the uncertain demand dynamics of the product over the planning horizon. In particular, we consider a dynamic model that is an extension of the Bass model. The performance of our algorithm is compared to that of a myopic pricing policy and is shown to give better results. Two significant advantages with our algorithm are as follows: (a) it does not require information on the system model parameters if the SDE system state is known via either a simulation device or real data, and (b) as it works efficiently even for high‐dimensional parameters, it uses the efficient smoothed functional gradient estimator.

Item Type:Article
Source:Copyright of this article belongs to John Wiley & Sons, Inc..
Keywords:Optimal Pricing Policy; Bass Model; Parameterized Stochastic Differential Equation (SDE); Stochastic Approximation Algorithm; Smoothed Functional Gradient Estimates.
ID Code:116504
Deposited On:12 Apr 2021 06:05
Last Modified:12 Apr 2021 06:05

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