Function (biology)

Product (mathematics)

Classification of discontinuities

Biology

Statistics

Microeconomics

Dynamic pricing

Point estimation

Revenue management

Economics

Discontinuity (linguistics)

Computer science

Mathematical optimization

Evolutionary biology

Mathematics

Econometrics

Mathematical analysis

Geometry

Revenue

Mathematical economics

Finance

Demand curve

Piecewise

Management Science

We consider a dynamic pricing problem with an unknown and discontinuous demand function. There is a seller who dynamically sets the price of a product over a multiperiod time horizon. The expected demand for the product is a piecewise continuous and parametric function of the charged price, allowing for possibly multiple discontinuity points. The seller initially knows neither the locations of the discontinuity points nor the parameters of the demand function but can infer them by observing stochastic demand realizations over time. We measure the seller’s performance by the revenue loss relative to a clairvoyant who knows the underlying demand function with certainty. We construct a dynamic estimation-and-pricing policy that accounts for demand discontinuities, derive the convergence rates of discontinuity- and parameter-estimation errors under this policy, and prove that it achieves near-optimal revenue performance. We also extend our analysis to the cases of time-varying demand discontinuities and inventory constraints. This paper was accepted by Noah Gans, stochastic models and simulation.

Discontinuous Demand Functions: Estimation and Pricing