ECE Colloquium - April 3
Prof. Ilan Lobel
Stern School of Business
New York University
CoRE Building Lecture Hall
Title: "Inter-temporal Price Discrimination: Structure and Computation of Optimal Policies"
We consider the question of how should a firm optimally set a sequence of prices in order to maximize its long-term average revenue given a continuous flow of strategic customers. In particular, customers arrive over time, are strategic in timing their purchases and are heterogeneous along two dimensions: their valuation for the firm's product and their willingness to wait before purchasing or leaving. The customers' patience and valuation may be correlated in an arbitrary fashion. For this general formulation, we prove that the firm may restrict attention to short cyclic pricing policies, which have length twice the maximum willingness to wait of the customer population. We further establish results on the subpotimality of monotone pricing policies in general, and illustrate the structure of optimal policies. These are, in a typical scenario, characterized by nested sales, where the firm offers partial discounts throughout each cycle, offers a significant discount halfway through the cycle, with the largest discount offered at the end of the cycle. From a computational perspective, we exploit the structure of the underlying problem to develop a novel dynamic programming formulation for the problem that computes an optimal pricing policy in polynomial time (in the maximum willingness-to-wait). We further establish a form of equivalence between the problem of pricing for a stream of heterogeneous strategic customers and pricing for a pool of heterogeneous customers who may stockpile units of the product. Joint work with Omar Besbes (Columbia).
The paper is available here:
Dr. Ilan Lobel is an Assistant Professor of Information, Operations and Management Sciences at New York University's Stern School of Business. Prior to joining NYU Stern in 2010, he was a post-doctoral researcher at the Microsoft Research New England Lab. He received his Ph.D. in Operations Research from the Massachusetts Institute of Technology in 2009 and his B.Sc. in Electrical Engineering from the Pontificia Universidade Catolica of Rio de Janeiro in 2004. Professor Lobel's research focuses on the operations of Internet-based businesses, including issues such as pricing, learning and contract design in online, dynamic and networked markets. His work focuses on application domains such as online advertisement, cloud computing and social networks.