Stochastic Dynamic Multi-Product Pricing with Dynamic Advertising and Adoption Effects

Journal of Revenue and Pricing Management, Forthcoming

28 Pages Posted: 20 Feb 2015 Last revised: 21 Jul 2015

See all articles by Rainer Schlosser

Rainer Schlosser

University of Potsdam - Hasso Plattner Institute (HPI)

Date Written: February 18, 2015

Abstract

We analyze stochastic dynamic multi-product pricing models for durable goods and consider a single advertising channel to promote all types of products. We include general adoption effects, unit costs as well as inventory holding costs. In case of isoelastic, exponential and linear demand, we derive solution formulas for the expected profit, the optimal feedback prices for all types of products, and the optimal advertising rate. In order to evaluate optimally controlled sales processes over time, we use efficient simulation techniques. Moreover, for the case of exponential demand, we demonstrate how to include risk aversion in the model.

Keywords: dynamic multi-product pricing, dynamic advertising, optimal stochastic control, adoption effects, durable goods

Suggested Citation

Schlosser, Rainer, Stochastic Dynamic Multi-Product Pricing with Dynamic Advertising and Adoption Effects (February 18, 2015). Journal of Revenue and Pricing Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2566938 or http://dx.doi.org/10.2139/ssrn.2566938

Rainer Schlosser (Contact Author)

University of Potsdam - Hasso Plattner Institute (HPI) ( email )

Prof.-Dr.-Helmert-Str. 2-3,
Potsdam
Germany

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