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Dynamic Pricing Over Finite Horizons

  • Guillermo Gallego
  • Huseyin Topaloglu
Chapter
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 279)

Abstract

In this chapter, we first consider the problem of dynamically pricing one or more products that consume a single resource. Sales take place over a finite selling horizon, and the objective is to maximize the expected revenue that can be obtained from a finite inventory of the resource. We will assume that inventories cannot be replenished during the sales horizon. This problem setup holds for hotels, airlines, and seasonal merchandise including fashion retailing that have long procurement lead times. In this chapter, we focus on models that explicitly consider the stochastic and dynamic nature of demand. We use dynamic programming formulations to compute an optimal policy as a function of the remaining inventory and the time-to-go. In some cases, we are able to give closed-form solutions for the value function and the optimal pricing policy. In other cases, we resort to numerical solutions and to heuristic policies.

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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Guillermo Gallego
    • 1
  • Huseyin Topaloglu
    • 2
  1. 1.Clearwater BayHong Kong
  2. 2.ORIECornell UniversityNew YorkUSA

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