Title page for ETD etd-12032003-154353


Type of Document Master's Thesis
Author Li, Feng
URN etd-12032003-154353
Title Optimal dynamic pricing for two perishable and substitutable products
Degree Master of Science
Department Industrial and Systems Engineering
Advisory Committee
Advisor Name Title
Lin, Kyle Y. Committee Chair
Bish, Ebru K. Committee Member
Fraticelli, Barbara M. P. Committee Member
Keywords
  • Product variety
  • Revenue management
  • Dynamic pricing
  • Quality differentiated
Date of Defense 2003-11-18
Availability unrestricted
Abstract
This thesis presents a dynamic pricing model where a seller offers

two types of a generic product to a random number of customers.

Customers show up sequentially. When a customer arrives, he will

---depending on the prices---either purchase one unit of type 1 product

or one unit of type 2 product, or will leave empty-handed. The

sale ends either when the entire stock is sold out, or when the

customers are exhausted. The seller's task is to post the optimal

prices for the two product types to each customer to maximize the

expected total revenue. We use dynamic programming to formulate

this problem, and derive the optimal policy for special cases. For

general cases, we develop an algorithm to approximate the optimal

policy and use numerical examples to demonstrate the efficiency of

the algorithm.

Finally, we apply the results to a continuous-time model where

customers arrive according to a Poisson process. We develop a

heuristic policy and use numerical examples to show the heuristic

policy is very effective.

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