A Reinforcement Learning Approach to Optimize Discount and Reputation Tradeoffs in E-commerce Systems

Abstract

Feedback-based reputation systems are widely deployed in E-commerce systems. Evidence shows that earning a reputable label (for sellers of such systems) may take a substantial amount of time, and this implies a reduction of profit. We propose to enhance sellers’ reputation via price discounts. However, the challenges are as follows: (1) The demands from buyers depend on both the discount and reputation, and (2) the demands are unknown to the seller. To address these challenges, we first formulate a profit maximization problem via a semi-Markov decision process to explore the optimal tradeoffs in selecting price discounts. We prove the monotonicity of the optimal profit and optimal discount. Based on the monotonicity, we design a Q-learning with forward projection (QLFP) algorithm, which infers the optimal discount from historical transaction data. We prove that the QLFP algorithm convergences to the optimal policy. We conduct trace-driven simulations using a dataset from eBay to evaluate the QLFP algorithm. Evaluation results show that QLFP improves the profit by as high as 50% over both Q-learning and Speedy Q-learning. The QLFP algorithm also improves both the reputation and profit by as high as two times over the scheme of not providing any price discount.