【Speaker】Susan H. Xu

【Topic】Joint Dynamic Pricing of Multiple Perishable Products Under Consumer Choice

【Time】 2008-09-23, 10:30 am

【Venue】Room 453,Weilun Building, Tsinghua SEM

Abstract: In response to competitive pressures, firms are increasingly adopting revenue management opportunities afforded by advances in information and communication technologies. Motivated by applications in industry, we consider a dynamic pricing problem facing a firm that sells given initial inventories of multiple substitutable and perishable products over a finite selling horizon. In these applications, since individual product demands are linked through consumer choices,the seller must formulate a joint dynamic pricing strategy while explicitly incorporating consumer behavior. For a general model of consumer choice, we model this multi-product dynamic pricing problem as a stochastic dynamic program and characterize its optimal prices. In addition, since consumer behavior depends on the nature of product differentiation, we specialize the general choice model to capture vertical and horizontal differentiation. When products are vertically differentiated, our results show monotonicity properties of the optimal prices and reveal that the optimal prices can be determined by considering aggregate inventories of products rather than their individual inventory levels. Accordingly, we develop a polynomial-time exact algorithm for determining the optimal prices. When products are horizontally differentiated, we find that analogous structural properties do not hold and the behavior of optimal prices is substantially different. To solve this problem, we develop a variant of the backward induction algorithm that uses cubic spline interpolation to construct the value functions at each stage. We demonstrate that this interpolation-based algorithm has low memory requirements and is very effective in generating near-optimal solutions that result in an average error of less than 0.15%.

About the speaker：Dr. Xu received her Ph.D degree in Operations Research and Statistics from Rensselaer Polytechnic Institute in 1987, and joined the Faculty of Smeal College of Business at Pennsylvia State University in 1987. Currently, Dr. Xu is Professor of Management Science and Supply Chain Management at Penn State. She had served as the Chair of the Intercollege Dual-Title Degree Graduate Program in Operations Research at Penn State University from 1998-2007. Dr. Xu’s primary research interests are centered on design, performance evaluation, simulation and optimization of stochastic operating systems and their applications in supply chain management and service systems, telecommunication, information technology, and reliability. In particular, she is interested in production and inventory systems, queueing theory, Markov decision processes, reliability systems, and stochastic ordering. Dr. Xu serves as Associate Editor of Operations Research, IEEE Trans on Reliability and Probability in Engineering and Informational Sciences. She also serves as Senior Editor of Journal of Flexible Services and Manufacturing.