Algorithmic pricing
Algorithmic pricing is the practice of automatically setting the practice of items for sale, in order to maximize the seller's profits.
Dynamic pricing algorithms usually rely on one or more of the following data.
- Statistical information on potential buyers, similarly to Bayesian-optimal mechanisms and random-sampling mechanisms.
- Prices of competitors. E.g., a seller of an item may automatically detect the lowest price currently offered for that item, and suggest a price within $1 of that price.[1][2]
- Personal information of the currently active buyer, such as his demographics and his interest in the product. If the seller detects that you are about to buy, your price goes up.[3]
- Business information of the seller, such as the expected date in which he is going to receive new stocks, or his target selling velocity in units per day.[4]
Pricing versus auctions
An auction mechanism is similar to a pricing algorithm in that its goal is to determine prices maximizing the seller's revenue. However, an auction is more complicated and has several steps: the potential buyers bid, the winner/s is/are selected, and only then the prices are determined.
The advantage of an auction is that, theoretically, it enables the seller to get higher revenue by properly selecting the set of winners based on their bids. Its disadvantage is that it is more complicated for the buyers, which may deter buyers and ultimately lead to loss of revenue.[5][6]
It is possible to bound the loss of revenue when using algorithmic-pricing instead of Bayesian optimal mechanisms.[7]
See also
References
- ^ "An Empirical Analysis of Algorithmic Pricing on Amazon Marketplace". doi:10.1145/2872427.2883089 (inactive 2016-07-01).
{{cite journal}}: Cite journal requires|journal=(help)CS1 maint: DOI inactive as of July 2016 (link) - ^ Olivia Vanni. "The Truth Behind Pricing Algorithms on Amazon's Marketplace". Retrieved 29 June 2016.
- ^ Robert Wagner (2013). "What are the principles behind Amazon's algorithmic pricing and what do they achieve?". Retrieved 29 June 2016.
- ^ Douglas Karr. "How to Use Algorithmic Pricing to Maximize Profits". Retrieved 29 June 2016.
- ^ Ausubel, Lawrence M.; Milgrom, Paul (2005). "The Lovely but Lonely Vickrey Auction". Combinatorial Auctions. p. 17. doi:10.7551/mitpress/9780262033428.003.0002. ISBN 9780262033428.
- ^ Catherine Holahan (June 3, 2008). "Auctions on eBay: A Dying Breed". Retrieved 1 July 2016.
- ^ Yan, Qiqi (2011). "Mechanism Design via Correlation Gap". Proceedings of the Twenty-Second Annual ACM-SIAM Symposium on Discrete Algorithms. p. 710. doi:10.1137/1.9781611973082.56. ISBN 978-0-89871-993-2.