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Seminars

Dynamics of Demand Estimation and Pricing using Models that do not Explicitly Account for Competition

Date: 10-09-2007
Start Time: 1:00pm
End Time: 2:00pm
Speaker: William Cooper, University of Minnesota
Location: Uris 333

ABSTRACT

Competition is an important factor in many revenue management and pricing problems.  However, the majority of revenue management models used in practice do not explicitly take competitors' prices into account. Moreover, the historical demand records used to estimate model parameters typically do not include information on competitors' prices.  What happens in such a setting?  To (partially) answer this question we study a duopoly where each firm's price affects the other's demand, but where the firms' pricing models do not explicitly account for this dependence.

Specifically, each firm models its demand as a function only of its own price and uses data to estimate model parameters. (Such simplified models are often used in revenue management practice, even when revenue managers are aware of the competition.) We study the evolution of such systems over repeated problem instances and compare the long-run behavior with that found in other settings, such as the equilibria of well-informed competitors, the outcomes of collaborators, and the outcomes when there is asymmetric information.

This is joint work with Tito Homem-de-Mello of Northwestern and Anton Kleywegt of Georgia Tech.

BIO

William L. Cooper is an Associate Professor in the Graduate Program in Industrial and Systems Engineering in the Department of Mechanical Engineering at the University of Minnesota. He received a B.S. in Mathematics from the University of Pennsylvania in 1993 and a Ph.D. in Industrial Engineering from Georgia Tech in 1999. His research on revenue management, stochastic modeling, and inventory theory has been supported by several NSF grants and his publications have appeared in journals such as Operations Research, Management Science, Manufacturing & Service Operations Management, and Journal of Applied Probability. He currently serves as an Associate Editor for Operations Research and IIE Transactions and as a Senior Editor for Production and Operations Management.