publication . Article . Other literature type . 2005

A Partially Observed Markov Decision Process for Dynamic Pricing

Yossi Aviv; Amit Pazgal;
Open Access
  • Published: 01 Sep 2005 Journal: Management Science, volume 51, issue 9 September, pages 1,400-1,416
Abstract
In this paper, we develop a stylized partially observed Markov decision process (POMDP) framework to study a dynamic pricing problem faced by sellers of fashion-like goods. We consider a retailer that plans to sell a given stock of items during a finite sales season. The objective of the retailer is to dynamically price the product in a way that maximizes expected revenues. Our model brings together various types of uncertainties about the demand, some of which are resolvable through sales observations. We develop a rigorous upper bound for the seller's optimal dynamic decision problem and use it to propose an active-learning heuristic pricing policy. We conduct...
Subjects
free text keywords: learning, partially observed Markov decision processes, pricing, revenue management, Management Science and Operations Research, Strategy and Management, Dynamic pricing, Heuristic, Partially observable Markov decision process, Markov decision process, Optimal decision, Decision problem, Operations research, Mathematical optimization, Markov process, symbols.namesake, symbols, Revenue management, Economics
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