A comparison of control strategies applied to a pricing problem in retail release_44u5d7mj4fcytebxhvx6hodvae

by Asbjørn N. Riseth, Jeff N. Dewynne, Chris L. Farmer

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abstracts[] {'sha1': '18db01e6c81a63e4c207530348a2ae6310d100d9', 'content': 'When sales of a product are affected by randomness in demand, retailers can\nuse dynamic pricing strategies to maximise their profits. In this article the\npricing problem is formulated as a stochastic optimal control problem, where\nthe optimal policy can be found by solving the associated Bellman equation. The\naim is to investigate Approximate Dynamic Programming algorithms for this\nproblem. For realistic retail applications, modelling the problem and solving\nit to optimality is intractable. Thus practitioners make simplifying\nassumptions and design suboptimal policies, but a thorough investigation of the\nrelative performance of these policies is lacking.\n To better understand such assumptions, we simulate the performance of two\nalgorithms on a one-product system. It is found that for more than half of the\nrealisations of the random disturbance, the often-used, but approximate,\nCertainty Equivalent Control policy yields larger profits than an optimal,\nmaximum expected-value policy. This approximate algorithm, however, performs\nsignificantly worse in the remaining realisations, which colloquially can be\ninterpreted as a more risk-seeking attitude by the retailer. Another policy,\nOpen-Loop Feedback Control, is shown to work well as a compromise between the\nCertainty Equivalent Control and the optimal policy.', 'mimetype': 'text/plain', 'lang': 'en'}
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{'index': 1, 'creator_id': None, 'creator': None, 'raw_name': 'Jeff N. Dewynne', 'given_name': None, 'surname': None, 'role': 'author', 'raw_affiliation': None, 'extra': None}
{'index': 2, 'creator_id': None, 'creator': None, 'raw_name': 'Chris L. Farmer', 'given_name': None, 'surname': None, 'role': 'author', 'raw_affiliation': None, 'extra': None}
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release_date 2017-10-05
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release_type article
release_year 2017
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title A comparison of control strategies applied to a pricing problem in retail
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arxiv.base_id 1710.02044
arxiv.categories ['math.OC', 'math.DS']
arxiv.comments 13 pages, 10 figures, 2 tables