22,780 research outputs found
Data Analytics in Operations Management: A Review
Research in operations management has traditionally focused on models for
understanding, mostly at a strategic level, how firms should operate. Spurred
by the growing availability of data and recent advances in machine learning and
optimization methodologies, there has been an increasing application of data
analytics to problems in operations management. In this paper, we review recent
applications of data analytics to operations management, in three major areas
-- supply chain management, revenue management and healthcare operations -- and
highlight some exciting directions for the future.Comment: Forthcoming in Manufacturing & Services Operations Managemen
Dealing with the Dimensionality Curse in Dynamic Pricing Competition: Using Frequent Repricing to Compensate Imperfect Market Anticipations
Most sales applications are characterized by competition and limited demand
information. For successful pricing strategies, frequent price adjustments as
well as anticipation of market dynamics are crucial. Both effects are
challenging as competitive markets are complex and computations of optimized
pricing adjustments can be time-consuming. We analyze stochastic dynamic
pricing models under oligopoly competition for the sale of perishable goods. To
circumvent the curse of dimensionality, we propose a heuristic approach to
efficiently compute price adjustments. To demonstrate our strategy's
applicability even if the number of competitors is large and their strategies
are unknown, we consider different competitive settings in which competitors
frequently and strategically adjust their prices. For all settings, we verify
that our heuristic strategy yields promising results. We compare the
performance of our heuristic against upper bounds, which are obtained by
optimal strategies that take advantage of perfect price anticipations. We find
that price adjustment frequencies can have a larger impact on expected profits
than price anticipations. Finally, our approach has been applied on Amazon for
the sale of used books. We have used a seller's historical market data to
calibrate our model. Sales results show that our data-driven strategy
outperforms the rule-based strategy of an experienced seller by a profit
increase of more than 20%
On Policies for Single-leg Revenue Management with Limited Demand Information
In this paper we study the single-item revenue management problem, with no
information given about the demand trajectory over time. When the item is sold
through accepting/rejecting different fare classes, Ball and Queyranne (2009)
have established the tight competitive ratio for this problem using booking
limit policies, which raise the acceptance threshold as the remaining inventory
dwindles. However, when the item is sold through dynamic pricing instead, there
is the additional challenge that offering a low price may entice high-paying
customers to substitute down. We show that despite this challenge, the same
competitive ratio can still be achieved using a randomized dynamic pricing
policy. Our policy incorporates the price-skimming technique from Eren and
Maglaras (2010), but importantly we show how the randomized price distribution
should be stochastically-increased as the remaining inventory dwindles. A key
technical ingredient in our policy is a new "valuation tracking" subroutine,
which tracks the possible values for the optimum, and follows the most
"inventory-conservative" control which maintains the desired competitive ratio.
Finally, we demonstrate the empirical effectiveness of our policy in
simulations, where its average-case performance surpasses all naive
modifications of the existing policies
Dynamic Pricing (and Assortment) under a Static Calendar
This work is motivated by our collaboration with a large consumer packaged
goods (CPG) company. We have found that while the company appreciates the
advantages of dynamic pricing, they deem it operationally much easier to plan
out a static price calendar in advance.
We investigate the efficacy of static control policies for revenue management
problems whose optimal solution is inherently dynamic. In these problems, a
firm has limited inventory to sell over a finite time horizon, over which
heterogeneous customers stochastically arrive. We consider both pricing and
assortment controls, and derive simple static policies in the form of a price
calendar or a planned sequence of assortments, respectively. In the assortment
planning problem, we also differentiate between the static vs. dynamic
substitution models of customer demand. We show that our policies are within
1-1/e (approximately 0.63) of the optimum under stationary (IID) demand, and
1/2 of the optimum under non-stationary demand, with both guarantees
approaching 1 if the starting inventories are large.
We adapt the technique of prophet inequalities from optimal stopping theory
to pricing and assortment problems, and our results are very general, holding
relative to the linear programming relaxation and holding even if fractional
amounts of inventory can be consumed at a time. Under the special case of IID
single-item pricing, our results improve the understanding of irregular and
discrete demand curves, by showing that a static calendar can be
(1-1/e)-approximate if the prices are sorted high-to-low.
Finally, we demonstrate on both data from the CPG company and synthetic data
from the literature that our simple price and assortment calendars are
effective
Dynamic Pricing with Variable Order Sizes for a Model with Constant Demand Elasticity
In this paper we investigate a dynamic pricing model for constant demand
elasticity where customers have a probability distribution on the number of
items they order. This is a generalization from standard models which restrict
customers to buy only one item at a time. For the generalized model, we first
obtain a closed form expression for the optimal expected revenue and optimal
pricing strategy. This expression involves a recursively defined term for which
we investigate the behavior. We call comparable models those which have the
same demand, which is the customer arrival rate times the average order size.
In fact, the average order size plays an important role for results for the
generalized model. An important result we show is that comparable models have
the same asymptotic pricing behavior. Numerical results also show that
comparable models are relatively close even for low inventory levels. Lastly,
we prove that the relative difference between comparable models is governed not
by the customer arrival rate, but solely by their order size distributions.Comment: 29 pages, submitted to European Journal of Operational Researc
Static Pricing: Universal Guarantees for Reusable Resources
We consider a fundamental pricing model in which a fixed number of units of a
reusable resource are used to serve customers. Customers arrive to the system
according to a stochastic process and upon arrival decide whether or not to
purchase the service, depending on their willingness-to-pay and the current
price. The service time during which the resource is used by the customer is
stochastic and the firm may incur a service cost. This model represents various
markets for reusable resources such as cloud computing, shared vehicles,
rotable parts, and hotel rooms. In the present paper, we analyze this pricing
problem when the firm attempts to maximize a weighted combination of three
central metrics: profit, market share, and service level. Under Poisson
arrivals, exponential service times, and standard assumptions on the
willingness-to-pay distribution, we establish a series of results that
characterize the performance of static pricing in such environments.
In particular, while an optimal policy is fully dynamic in such a context, we
prove that a static pricing policy simultaneously guarantees 78.9% of the
profit, market share, and service level from the optimal policy. Notably, this
result holds for any service rate and number of units the firm operates. Our
proof technique relies on a judicious construction of a static price that is
derived directly from the optimal dynamic pricing policy. In the special case
where there are two units and the induced demand is linear, we also prove that
the static policy guarantees 95.5% of the profit from the optimal policy. Our
numerical findings on a large testbed of instances suggest that the latter
result is quite indicative of the profit obtained by the static pricing policy
across all parameters
Pricing Policies for Selling Indivisible Storable Goods to Strategic Consumers
We study the dynamic pricing problem faced by a monopolistic retailer who
sells a storable product to forward-looking consumers. In this framework, the
two major pricing policies (or mechanisms) studied in the literature are the
preannounced (commitment) pricing policy and the contingent (threat or history
dependent) pricing policy. We analyse and compare these pricing policies in the
setting where the good can be purchased along a finite time horizon in
indivisible atomic quantities. First, we show that, given linear storage costs,
the retailer can compute an optimal preannounced pricing policy in polynomial
time by solving a dynamic program. Moreover, under such a policy, we show that
consumers do not need to store units in order to anticipate price rises.
Second, under the contingent pricing policy rather than the preannounced
pricing mechanism, (i) prices could be lower, (ii) retailer revenues could be
higher, and (iii) consumer surplus could be higher. This result is surprising,
in that these three facts are in complete contrast to the case of a retailer
selling divisible storable goods Dudine et al. (2006). Third, we quantify
exactly how much more profitable a contingent policy could be with respect to a
preannounced policy. Specifically, for a market with consumers, a
contingent policy can produce a multiplicative factor of more
revenues than a preannounced policy, and this bound is tight.Comment: A 1-page abstract of an earlier version of this paper was published
in the proceedings of the 11th conference on Web and Internet Economics
(WINE), 201
Commodity Market Dynamics and the Joint Executive Committee (1880-1886)
Using weekly spot and future commodity prices in Chicago and New York, we construct expected transportation rates for grain between these two cities, expected inventory levels in New York, and realized errors in the expectations of such variables. We incorporate these exogenous com- modity market dynamics into Porter’s (1983) structural modeling of the Joint Executive Committee Railroad Cartel. As in Porter, we model mar- ginal cost as a parametric function of (instrumented) output, among other factors. Unlike Porter, we model pricing over marginal cost as a nonparamet- ric function of a set of variables, which include expectations of deterministic demand cycles and cartel stability. We estimate the pricing and demand equation simultaneously and semiparametrically. Our estimated weekly markups during periods of cartel stability are shown to reflect optimal collu- sive pricing over deterministic business cycles, as modeled in Haltiwanger and Harrington (1991). Periods of cartel instability are proven to be triggered by realized mistakes in expectations of New York grain prices
Scarcity Rents in Car Retailing: Evidence from Inventory Fluctuations at Dealerships
Price variation for identical cars at the same dealership is commonly assumed to arise because dealers with market power are able to price discriminate among their customers. In this paper we show that while price discrimination may be one element of price variation, price variation also arises from inventory fluctuations. Inventory fluctuations create scarcity rents for cars that are in short supply. The price variation due to inventory fluctuations thus functions to efficiently allocate particular cars that are in restricted supply to those customers who value them most highly. Our empirical results show that a dealership moving from a situation of inventory shortage to an average inventory level lowers transaction prices by about 1% ceteris paribus, corresponding to 15% of dealers' average per vehicle profit margin or $250 on the average car. Shorter resupply times also decrease transaction prices for cars in high demand. For traditional dealerships, inventory explains 49% of the combined inventory and demographic components of the predicted price. For so-called 'no-haggle' dealerships, the percentage explained by inventory increases to 74%.
Efficiency and marginal cost pricing in dynamic competitive markets with friction
This paper examines a dynamic general equilibrium model with supply friction. With or without friction, the competitive equilibrium is efficient. Without friction, the market price is completely determined by the marginal production cost. If friction is present, no matter how small, then the market price fluctuates between zero and the "choke-up" price, without any tendency to converge to the marginal production cost, exhibiting considerable volatility. The distribution of the gains from trading in an efficient allocation may be skewed in favor of the supplier, although every player in the market is a price taker.Dynamic general equilibrium model with supply friction, choke-up price, marginal production cost, welfare theorems
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