Risk In Revenue Management And Dynamic Pricing
Source: Queen's University
The paper presents a new model for optimal dynamic pricing of perishable services or products that incorporates a simple risk measure permitting control of the probability that total revenues fall below a minimum acceptable level. The formulation assumes that sales must occur within a finite time period, that there is a finite - possibly large - set of available prices, and that demand follows a price-dependent, non-homogeneous Poisson process. This model is particularly appropriate for applications in which attainment of a revenue target is an important consideration for managers; for example, in event management, in seasonal clearance of high-value items, or for business subunits operating under performance targets.