[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v197y2009i3p969-980.html
   My bibliography  Save this article

Dynamic price competition with discrete customer choices

Author

Listed:
  • Lin, Kyle Y.
  • Sibdari, Soheil Y.
Abstract
For many years, dynamic pricing has proven to be an effective tool to increase revenue in the airline and other service industries. Most studies, however, focused on monopolistic models and ignored the fact that nowadays consumers can easily compare prices on the Internet. In this paper, we develop a game-theoretic model to describe real-time dynamic price competition between firms that sell substitutable products. By assuming the real-time inventory levels of all firms are public information, we show the existence of Nash equilibrium. We then discuss how a firm can adapt if it knows only the initial - but not the real-time - inventory levels of its competitors. We compare a firm's expected revenue under different information structures through numerical experiments.

Suggested Citation

  • Lin, Kyle Y. & Sibdari, Soheil Y., 2009. "Dynamic price competition with discrete customer choices," European Journal of Operational Research, Elsevier, vol. 197(3), pages 969-980, September.
    • Handle: RePEc:eee:ejores:v:197:y:2009:i:3:p:969-980
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(08)00210-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Janakiram Subramanian & Shaler Stidham & Conrad J. Lautenbacher, 1999. "Airline Yield Management with Overbooking, Cancellations, and No-Shows," Transportation Science, INFORMS, vol. 33(2), pages 147-167, May.
    2. Ladany, Shaul P. & Arbel, Avner, 1991. "Optimal cruise-liner passenger cabin pricing policy," European Journal of Operational Research, Elsevier, vol. 55(2), pages 136-147, November.
    3. Jean-Pierre Benoit & Vijay Krishna, 1987. "Dynamic Duopoly: Prices and Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(1), pages 23-35.
    4. Kirman, Alan P & Sobel, Matthew J, 1974. "Dynamic Oligopoly with Inventories," Econometrica, Econometric Society, vol. 42(2), pages 279-287, March.
    5. Guillermo Gallego & Garrett van Ryzin, 1997. "A Multiproduct Dynamic Pricing Problem and Its Applications to Network Yield Management," Operations Research, INFORMS, vol. 45(1), pages 24-41, February.
    6. Serguei Netessine & Robert A. Shumsky, 2005. "Revenue Management Games: Horizontal and Vertical Competition," Management Science, INFORMS, vol. 51(5), pages 813-831, May.
    7. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    8. Gabriel R. Bitran & Susana V. Mondschein, 1995. "An Application of Yield Management to the Hotel Industry Considering Multiple Day Stays," Operations Research, INFORMS, vol. 43(3), pages 427-443, June.
    9. Jeffrey I. McGill & Garrett J. van Ryzin, 1999. "Revenue Management: Research Overview and Prospects," Transportation Science, INFORMS, vol. 33(2), pages 233-256, May.
    10. Fernando Bernstein & Awi Federgruen, 2003. "Pricing and Replenishment Strategies in a Distribution System with Competing Retailers," Operations Research, INFORMS, vol. 51(3), pages 409-426, June.
    11. Peng-Sheng You, 1999. "Dynamic Pricing in Airline Seat Management for Flights with Multiple Flight Legs," Transportation Science, INFORMS, vol. 33(2), pages 192-206, May.
    12. Chatwin, Richard E., 2000. "Optimal dynamic pricing of perishable products with stochastic demand and a finite set of prices," European Journal of Operational Research, Elsevier, vol. 125(1), pages 149-174, August.
    13. Marc Dudey, 1992. "Dynamic Edgeworth-Bertrand Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1461-1477.
    14. Wen Zhao & Yu-Sheng Zheng, 2000. "Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand," Management Science, INFORMS, vol. 46(3), pages 375-388, March.
    15. Youyi Feng & Baichun Xiao, 2000. "A Continuous-Time Yield Management Model with Multiple Prices and Reversible Price Changes," Management Science, INFORMS, vol. 46(5), pages 644-657, May.
    16. Serguei Netessine & Nils Rudi, 2003. "Centralized and Competitive Inventory Models with Demand Substitution," Operations Research, INFORMS, vol. 51(2), pages 329-335, April.
    17. Gérard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
    18. Leonard F. Herk, 1993. "Consumer Choice and Cournot Behavior in Capacity-Constrained Duopoly Competition," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 399-417, Autumn.
    19. Siddharth Mahajan & Garrett van Ryzin, 2001. "Inventory Competition Under Dynamic Consumer Choice," Operations Research, INFORMS, vol. 49(5), pages 646-657, October.
    20. Franses,Philip Hans & Paap,Richard, 2010. "Quantitative Models in Marketing Research," Cambridge Books, Cambridge University Press, number 9780521143653, September.
    21. Conrad J. Lautenbacher & Shaler Stidham, 1999. "The Underlying Markov Decision Process in the Single-Leg Airline Yield-Management Problem," Transportation Science, INFORMS, vol. 33(2), pages 136-146, May.
    22. Wedad Elmaghraby & P{i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, vol. 49(10), pages 1287-1309, October.
    23. Steven A. Lippman & Kevin F. McCardle, 1997. "The Competitive Newsboy," Operations Research, INFORMS, vol. 45(1), pages 54-65, February.
    24. Lawrence R. Weatherford & Samuel E. Bodily, 1992. "A Taxonomy and Research Overview of Perishable-Asset Revenue Management: Yield Management, Overbooking, and Pricing," Operations Research, INFORMS, vol. 40(5), pages 831-844, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dasci, A. & Karakul, M., 2009. "Two-period dynamic versus fixed-ratio pricing in a capacity constrained duopoly," European Journal of Operational Research, Elsevier, vol. 197(3), pages 945-968, September.
    2. Gabriel Bitran & René Caldentey, 2003. "An Overview of Pricing Models for Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 203-229, August.
    3. Marcus, Benjamin & Anderson, Chris K., 2008. "Revenue management for low-cost providers," European Journal of Operational Research, Elsevier, vol. 188(1), pages 258-272, July.
    4. Lin, Kyle Y., 2006. "Dynamic pricing with real-time demand learning," European Journal of Operational Research, Elsevier, vol. 174(1), pages 522-538, October.
    5. Sibdari, Soheil & Pyke, David F., 2014. "Dynamic pricing with uncertain production cost: An alternating-move approach," European Journal of Operational Research, Elsevier, vol. 236(1), pages 218-228.
    6. Sibdari, Soheil & Pyke, David F., 2010. "A competitive dynamic pricing model when demand is interdependent over time," European Journal of Operational Research, Elsevier, vol. 207(1), pages 330-338, November.
    7. Syed Asif Raza & Rafi Ashrafi & Ali Akgunduz, 2020. "A bibliometric analysis of revenue management in airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(6), pages 436-465, December.
    8. Jeffrey I. McGill & Garrett J. van Ryzin, 1999. "Revenue Management: Research Overview and Prospects," Transportation Science, INFORMS, vol. 33(2), pages 233-256, May.
    9. Kyle Y. Lin, 2004. "A sequential dynamic pricing model and its applications," Naval Research Logistics (NRL), John Wiley & Sons, vol. 51(4), pages 501-521, June.
    10. Pak, K. & Piersma, N., 2002. "airline revenue management," ERIM Report Series Research in Management ERS-2002-12-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    11. Pak, K. & Piersma, N., 2002. "Airline revenue management: an overview of OR techniques 1982-2001," Econometric Institute Research Papers EI 2002-03, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    12. Alec Morton, 2006. "Structural properties of network revenue management models: An economic perspective," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(8), pages 748-760, December.
    13. William L. Cooper, 2002. "Asymptotic Behavior of an Allocation Policy for Revenue Management," Operations Research, INFORMS, vol. 50(4), pages 720-727, August.
    14. Torsten J. Gerpott & Jan Berends, 2022. "Competitive pricing on online markets: a literature review," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(6), pages 596-622, December.
    15. Dan Zhang & Larry Weatherford, 2017. "Dynamic Pricing for Network Revenue Management: A New Approach and Application in the Hotel Industry," INFORMS Journal on Computing, INFORMS, vol. 29(1), pages 18-35, February.
    16. Feng, Youyi & Xiao, Baichun, 2006. "Integration of pricing and capacity allocation for perishable products," European Journal of Operational Research, Elsevier, vol. 168(1), pages 17-34, January.
    17. Hu, Qiying & Wei, Yihua & Xia, Yusen, 2010. "Revenue management for a supply chain with two streams of customers," European Journal of Operational Research, Elsevier, vol. 200(2), pages 582-598, January.
    18. Chew, Ek Peng & Lee, Chulung & Liu, Rujing, 2009. "Joint inventory allocation and pricing decisions for perishable products," International Journal of Production Economics, Elsevier, vol. 120(1), pages 139-150, July.
    19. Constantinos Maglaras & Joern Meissner, 2006. "Dynamic Pricing Strategies for Multiproduct Revenue Management Problems," Manufacturing & Service Operations Management, INFORMS, vol. 8(2), pages 136-148, July.
    20. Doan, Xuan Vinh & Lei, Xiao & Shen, Siqian, 2020. "Pricing of reusable resources under ambiguous distributions of demand and service time with emerging applications," European Journal of Operational Research, Elsevier, vol. 282(1), pages 235-251.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:197:y:2009:i:3:p:969-980. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.