Pricing Competition in a Duopoly with Self-adapting Strategies

Youri Kaminsky, Tobias Maltenberger, Mats Pörschke, Jan Westphal, Rainer Schlosser

2021

Abstract

Online markets are characterized by highly dynamic price adjustments and steady competition. Many market participants adjust their prices in real-time to changing market situations caused by competitors’ pricing strategies. In this paper, we examine price optimization within a duopoly under an infinite time horizon with mutually unknown strategies. The challenge is to derive knowledge about the opponent’s pricing strategy automatically and to respond effectively. Strategy exploration procedures used to build a data foundation on a competitor’s strategy are crucial in unknown environments and therefore need to be selected and configured with caution. We show how our models explore and exploit a competitor’s price reaction probabilities. Moreover, we verify the quality of our learning approach against optimal strategies exploiting full information. In addition to that, we analyze the mutual interplay of two self-learning strategies. We observe a clear winning party over time as well as that they can also form a cartel when motivated accordingly.

Paper Citation

in Harvard Style

Kaminsky Y., Maltenberger T., Pörschke M., Westphal J. and Schlosser R. (2021). Pricing Competition in a Duopoly with Self-adapting Strategies.In Proceedings of the 10th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES, ISBN 978-989-758-485-5, pages 60-71. DOI: 10.5220/0010232900600071

in Bibtex Style

@conference{icores21,
author={Youri Kaminsky and Tobias Maltenberger and Mats Pörschke and Jan Westphal and Rainer Schlosser},
title={Pricing Competition in a Duopoly with Self-adapting Strategies},
booktitle={Proceedings of the 10th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,},
year={2021},
pages={60-71},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0010232900600071},
isbn={978-989-758-485-5},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 10th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,
TI - Pricing Competition in a Duopoly with Self-adapting Strategies
SN - 978-989-758-485-5
AU - Kaminsky Y.
AU - Maltenberger T.
AU - Pörschke M.
AU - Westphal J.
AU - Schlosser R.
PY - 2021
SP - 60
EP - 71
DO - 10.5220/0010232900600071