List Pricing versus Dynamic Pricing: Impact on the Revenue Risk

Matthias Koenig, Joern Meissner

Abstract We consider the problem of a firm selling multiple products that consume a single resource over a finite time period. The amount of the resource is exogenously fixed. We analyze the difference between a dynamic pricing policy and a list price capacity control policy. The dynamic pricing policy adjusts prices steadily resolving the underlying problem every time step, whereas the list pricing policy sets static prices once but controls the capacity by allowing or preventing product sales.

As steady price changes are in practice often costly or not achievable, we are interested in the question how riskier is applying a list pricing than a dynamic pricing policy. We conducted several numerical experiments and compared expected revenue, standard deviation, and conditional-value-at-risk between both pricing policies. The differences between the policies show that list pricing can be an useful strategy when dynamic pricing is costly or not practical.

conditional value at risk, capacity control, dynamic pricing, revenue management, risk

Status European Journal of Operational Research Vol 204, Issue 3 (August 2010), pp 505–512.
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