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

Chakravarty, Saswata and Padakandla, Sindhu and Bhatnagar, Shalabh (2014) A simulation-based algorithm for optimal pricing policy under demand uncertainty. In: INTERNATIONAL TRANSACTIONS IN OPERATIONAL RESEARCH, 21 (5). pp. 737-760.

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


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: Journal Article
Additional Information: Copy right for this article belongs to the WILEY-BLACKWELL, 111 RIVER ST, HOBOKEN 07030-5774, NJ USA
Keywords: optimal pricing policy; Bass model; parameterized stochastic differential equation (SDE); stochastic approximation algorithm; smoothed functional gradient estimates
Department/Centre: Division of Electrical Sciences > Computer Science & Automation
Division of Electrical Sciences > Electrical Engineering
Date Deposited: 24 Sep 2014 05:48
Last Modified: 24 Sep 2014 05:48
URI: http://eprints.iisc.ac.in/id/eprint/49918

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