Dynamic Pricing Strategies in a Finite Horizon Duopoly with Partial Information

Rainer Schlosser, Keven Richly

2018

Abstract

In many applications the sale of perishable products is characterized by competitive settings and incomplete information. While prices of sellers are typically observable, the inventory levels of firms are mutually not observable. In this paper, we analyze stochastic dynamic pricing models in a finite horizon duopoly with partial information. We use a Hidden Markov Model approach to compute strategies that are applicable when the competitor’s inventory level is not observable. Our approach utilizes feedback pricing strategies that are optimal if the competitor’s inventory level is observable. We show that price reactions are balancing two effects: (i) to slightly undercut the competitor’s price to sell more items, and (ii) to use high prices to promote a competitor’s run-out and to act as a monopolist for the rest of the time horizon. Moreover, we compute heuristic strategies that can be applied when the number of competitors is large and their strategies are unknown. We find that expected profits are hardly affected by different information structures as long as the firms’ information is symmetric.

Paper Citation

in Harvard Style

Schlosser R. and Richly K. (2018). Dynamic Pricing Strategies in a Finite Horizon Duopoly with Partial Information.In Proceedings of the 7th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES, ISBN 978-989-758-285-1, pages 21-30. DOI: 10.5220/0006529900210030

in Bibtex Style

@conference{icores18,
author={Rainer Schlosser and Keven Richly},
title={Dynamic Pricing Strategies in a Finite Horizon Duopoly with Partial Information},
booktitle={Proceedings of the 7th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,},
year={2018},
pages={21-30},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0006529900210030},
isbn={978-989-758-285-1},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 7th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,
TI - Dynamic Pricing Strategies in a Finite Horizon Duopoly with Partial Information
SN - 978-989-758-285-1
AU - Schlosser R.
AU - Richly K.
PY - 2018
SP - 21
EP - 30
DO - 10.5220/0006529900210030