Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/313823 
Year of Publication: 
2024
Citation: 
[Journal:] OR Spectrum [ISSN:] 1436-6304 [Volume:] 46 [Issue:] 1 [Publisher:] Springer Berlin Heidelberg [Place:] Berlin/Heidelberg [Year:] 2024 [Pages:] 29-72
Publisher: 
Springer Berlin Heidelberg, Berlin/Heidelberg
Abstract: 
Abstract We combine nonparametric price response modeling and dynamic pricing. In particular, we model sales response for fast-moving consumer goods sold by a physical retailer using a Bayesian semiparametric approach and incorporate the price of the previous period as well as further time-dependent covariates. All nonlinear effects including the one-period lagged price dynamics are modeled via P-splines, and embedding the semiparametric model into a Hierarchical Bayesian framework enables the estimation of nonlinear heterogeneous (i.e., store-specific) immediate and lagged price effects. The nonlinear heterogeneous model specification is used for price optimization and allows the derivation of optimal price paths of brands for individual stores of retailers. In an empirical study, we demonstrate that our proposed model can provide higher expected profits compared to competing benchmark models, while at the same time not seriously suffering from boundary problems for optimized prices and sales quantities. Optimal price policies for brands are determined by a discrete dynamic programming algorithm.
Subjects: 
Sales response models
Functional flexibility
Store heterogeneity
Price dynamics
Price optimization
Discrete dynamic programming
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version
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