Dynamic Price Competition Research Articles

Dynamic Price Competition with Capacity Constraints

Dynamic Price Competition with Capacity Constraints

Dynamic price competition market for retailers in the context of consumer learning behavior and supplier competition: Machine learning-enhanced agent-based modeling and simulation

This study analyzes the impact of consumer learning behavior and supplier price competition on retailer price competition in a complex adaptive system. Using machine Learning-enhanced agent-based modeling and simulation, the study applies fuzzy logic and genetic algorithms to model price decisions, and reinforcement learning and swarm intelligence to model consumer behavior. Simulations reveal that different learning behaviors result in different retailer competition patterns, and that supplier price competition affects the strength of retailer price competition. Simulation results demonstrate that consumer learning behavior influences retailer competition, with self-learning consumers leading to higher-priced partnerships, and collective-learning consumers leading to a shift in price competition among retailers. In contrast, perfect rationality consumers result in low-price competition and the lowest average margin and profit. Additionally, the competitive price behavior of suppliers impacts retailers' price competition patterns, with supplier price competition reducing retailer price competition in the perfect rationality consumer market and enhancing it in the self-learning and collective-learning consumer markets, leading to lower average prices and profits for retailers. This study presents a simulated market for price competition among suppliers, retailers, and consumers that can be expanded by subsequent scholars to test related hypotheses.

Strategies for dynamic pricing competition between differentiated sellers: Considering platform fees and strategic consumers

AbstractIn the dynamic realm of the platform economy, the intricate relationship between platform charging mechanisms, seller tactics, and consumer behavior is crucial. This study delves into this relationship by constructing a two‐period dynamic game model, examining how different platform charging approaches impact pricing strategies among two distinct sellers, all while considering consumer strategic actions. Our findings reveal that the combination of seller quality differentiation and platform charging methods profoundly shapes consumer strategic actions. Interestingly, strategic consumers do not invariably harm seller profits. In specific settings, such as when using a revenue‐sharing model with slight quality differentiation, high‐quality sellers might even reap greater benefits than when dealing with short‐sighted consumers. Moreover, the decision for sellers to adhere to a specific price isn't always advantageous. For instance, under a revenue‐sharing model with limited competition, a price commitment from a lower quality seller might backfire. Additionally, in scenarios with a fixed‐fee model, there's a noticeable lack of incentive for differentiated sellers to commit to prices. This study accentuates the subtle yet significant influence of consumer strategic actions on seller profits in the platform economy context. It underscores the imperative for both sellers and platforms to remain vigilant and adaptive, ensuring their strategies resonate with the ever‐evolving consumer behaviors.

Game-Based Demand Feedback Reservation Parking Pricing

Reservation parking is a new type of parking that allows users to obtain a parking space for an appropriate time slot by reservation. This paper pioneers a high degree-of-freedom reservation strategy and rules for commercial districts in which users can arbitrarily select parking time slots. The nested logit is applied to build a parking revenue model by analyzing the cost, demand, and price factors sequentially according to the user’s choice behavior. The parking lot price game in the region is dissected and a nonlinear pricing model is proposed for maximizing regional returns. A model validation of a parking lot in an actual commercial area shows that compared to the traditional parking method, the parking lot revenue increased by 69.63% upon the application of this reservation strategy and pricing scheme, while the parking lot traffic increased by 22.4%. This model can provide strong support for reservation parking pricing in commercial areas. In the comparison of scenarios, the scientific validity of this model using dynamic pricing and regional game competition is verified. In the application, a reasonable price scheme can be formulated based on the parking lot traffic, cost, and surrounding parking strategies, which can result in higher parking revenue while providing users with great parking convenience.

Unveiling Venice’s hotels competition networks from dynamic pricing digital market

Abstract We study the dynamic price competition of hotels in Venice using publicly available data scraped from an online travel agency. This study poses two main challenges. First, the time series of prices recorded for each hotel encompasses a twofold time frame. For every single asking price for an overnight stay on a specific day, there is a corresponding time series of asking prices along the booking window on the online platforms. Second, the competition relations between different hoteliers is clearly unknown and needs to be discovered using a suitable methodology. We address these problems by proposing a novel Network Autoregressive model which is able to handle the peculiar threefold data structure of the data set with time-varying coefficients over the booking window. This approach allows us to uncover the competition network of the market players by employing a quick data-driven algorithm. Independent, mixed, and leader–follower relationships are detected, revealing the competitive dynamics of the destination, useful to managers and stakeholders.

Dynamic Price Competition for Low-Cost Silver Plans on Healthcare.gov 2014-2021.

More than 16 million people receive health care coverage through the Affordable Care Act's (ACA) individual health insurance marketplaces. Many enrollees receive premium subsidies that are tied to the premium of the second least expensive silver plan available. This study investigates the consistency of the least expensive silver plan offered on Healthcare.gov from 2014 to 2021 and finds that on average, from one year to the next, the same insurer offered the least expensive silver plan in 63.1% of counties representing 54.7% of the population. However, even when the same insurer offers the least expensive plan, almost half the time, they introduce a new, less expensive plan in the next policy year. Consequently, ACA enrollees who previously purchased the least expensive silver plan may face incremental premium costs unless they spend time and effort to carefully reevaluate their choices each year. We estimate the potential premium cost of inattention and show how it varies over time and across states.

Price dynamics of Swedish pharmaceuticals

This paper investigates price patterns of off-patent pharmaceuticals in Sweden. I show that price dynamics are dependent on the number of competitors in the market. The price patterns follow predictions from a model of dynamic price competition in which the demand for pharmaceuticals incorporates the known biases of consumers: habit persistence and brand preferences. Using the regulated market of Swedish pharmaceuticals, I show that price dynamics may help in identifying possible tacit collusion by manufacturers in markets where consumers experience behavioral frictions.

Dynamic Price Competition, Learning-by-Doing, and Strategic Buyers

We examine how strategic buyer behavior affects equilibrium outcomes in a model of dynamic price competition where sellers benefit from learning-by-doing by allowing each buyer to expect to capture a share of future buyer surplus. Many equilibria that exist when buyers consider only their immediate payoffs are eliminated when buyers expect to capture even a modest share of future surplus, and the equilibria that survive are those where long-run market competition is more likely to be preserved. Our results are relevant for antitrust policy and our approach may be useful for future analyses of dynamic competition. (JEL C73, D21, D43, D83, K21, L13, L40)

Dynamic Price Competition: Theory and Evidence from Airline Markets

Dynamic Price Competition: Theory and Evidence from Airline Markets

Dynamic Price Competition: Theory and Evidence from Airline Markets

Dynamic Price Competition: Theory and Evidence from Airline Markets

Subgame Perfect Nash Equilibrium for Dynamic Pricing Competition with Finite Planning Horizon

Subgame Perfect Nash Equilibrium for Dynamic Pricing Competition with Finite Planning Horizon

Dynamic Price Competition for Supply

We introduce a dynamic price competition model for duopsony. Each buyer receives a privately observed profit shock in each period and uses a publicly observable and retroactive price to entice sellers to sell to her in the upcoming period. The price competition scheme captures sellers’ responsiveness to a price difference and their sensitivity to the sizes of price differences, and it can be easily modified to study symmetric or asymmetric price competition in a duopoly.

Price Dynamics of Swedish Pharmaceuticals

This paper investigates price patterns of off-patent pharmaceuticals in Sweden. I show that price dynamics are dependent on the number of competitors in the market. The price patterns follow predictions from a model of dynamic price competition in which the demand for pharmaceuticals incorporates the known biases of consumers: habit persistence and brand preferences. Using the regulated market of Swedish pharmaceuticals, I show that price dynamics may help in identifying possible tacit collusion by manufacturers in markets where consumers experience behavioral frictions.

Dynamic Price Competition, Learning-by-Doing and Strategic Buyers

We generalize recent models of dynamic price competition where sellers benefit from learning-by-doing by allowing for long-lived strategic buyers, with a single parameter capturing the extent to which each buyer internalizes future buyer surplus. Many of the equilibria that exist when buyers are atomistic or myopic are eliminated when buyers internalize even a modest share of their effects on future surplus. The equilibria that survive tend to be those where long-run market competition is preserved. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Dynamic price competition in auto insurance brokerage

AbstractWe analyze Brazilian data on auto insurance and document that (a) about 20% of policies are sold without brokerage commission; (b) over 40% are sold at the highest fee allowed; and (c) the remaining contracts are associated with a spread‐out distribution of fees. Static models cannot rationalize these findings. We develop a dynamic model of price competition with search and switching costs that reproduces them. We use the equilibrium structure to estimate the model parameters and infer the brokers' expected earnings, the frequency that insurees switch brokers, and the counterfactual effects of a price ceiling policy.

Information Acquisition, signaling and learning in duopoly

We study firms’ incentives to acquire private information on cost in a duopoly signaling game. Firms first choose how much to invest in information acquisition and then engage in dynamic price competition. In equilibrium firms acquire too little information from the perspective of industry profit and the perspective of social welfare. We consider two policies that an industry trade association may institute in light of this: (i) the trade association invests directly to acquire private information for each firm, and (ii) firms individually invest in acquiring private information on their costs, and the trade association collects this information and disseminates it after first period prices have been set. Allowing the trade association to acquire information increases firms’ profits and may also increase consumer surplus. Information sharing eliminates firms’ signaling incentives, and as a result leads to more information acquisition by the firms and higher consumer surplus as well as higher social welfare. However, information sharing increases firms’ profits only when the ex ante uncertainty about cost is large, and it reduces profits otherwise.

Duopoly Provision of Services Based on Wireless Sensor-supplied Data: a Differential Game Model

The provision of services based on wireless sensor data is analyzed dynamically. In the proposed scenario, two competing service providers deploy their own wireless sensor networks in order to collect the data and provide services to final users. The service providers compete in prices dynamically in order to maximize their profits, while the behavior of the users is modeled using a discrete choice model. The model is analyzed using game theory. The changes in the population of users are analyzed through an evolutionary game and the Logit dynamic, while the dynamic competition in prices is studied using a differential game. We conclude that the dynamic pricing competition is economically feasible for the service providers and, in addition, the dynamic solution converges to the static solution of the scenario.

Complexity Analysis of Prefabrication Contractors’ Dynamic Price Competition in Mega Projects with Different Competition Strategies

This paper considers a repeated duopoly game of prefabrication contractors in mega infrastructure projects and assumes the contractors exhibit bounded rationality. Based on the theory of bifurcation of dynamical systems, a dynamic price competition model is constructed considering different competition strategies. Accordingly, the stability of the equilibrium point of the system is discussed considering different initial market capacities, and numerical simulation is performed. The results show the system has a unique equilibrium solution when initial capacity is high and the parameters meet certain conditions. The contractors’ price adjustment strategy has an important influence on system stability. However, an overly aggressive competition strategy is not conducive to system stability. Moreover, the system is sensitive to initial parameter values.

Dealing with the dimensionality curse in dynamic pricing competition: Using frequent repricing to compensate imperfect market anticipations

Most sales applications are characterized by competition and limited demand information. For successful pricing strategies, frequent price adjustments as well as anticipation of market dynamics are crucial. Both effects are challenging as competitive markets are complex and computations of optimized pricing adjustments can be time-consuming. We analyze stochastic dynamic pricing models under oligopoly competition for the sale of perishable goods. To circumvent the curse of dimensionality, we propose a heuristic approach to efficiently compute price adjustments. To demonstrate our strategy’s applicability even if the number of competitors is large and their strategies are unknown, we consider different competitive settings in which competitors frequently and strategically adjust their prices. For all settings, we verify that our heuristic strategy yields promising results. We compare the performance of our heuristic against upper bounds, which are obtained by optimal strategies that take advantage of perfect price anticipations. We find that price adjustment frequencies can have a larger impact on expected profits than price anticipations. Finally, our approach has been applied on Amazon for the sale of used books. We have used a seller’s historical market data to calibrate our model. Sales results show that our data-driven strategy outperforms the rule-based strategy of an experienced seller by a profit increase of more than 20%.

Dynamic Price Competition between a Macrocell Operator and a Small Cell Operator: A Differential Game Model

An economic model was analyzed where a new supplier implements the technology of the small cells and positions itself as an incumbent service provider. This provider performs a dynamic reuse of resources to compete with the macrocells service provider. The model was analyzed using game theory as a two‐stage game. In the first stage, the service providers play a Stackelberg differential game where the price is the control variable, the existing provider is the leader, and the new supplier is the follower. In the second stage, users’ behavior is modeled using an evolutionary game that allows predicting the population changes with variable conditions. This paper contributes to the implementation of new technologies in the market of mobile communications through analysis of competition between the new small cell service providers (SSPs) and the existing service providers along with the users’ behavior of mobile communications. The result shows that users get a better service, SSP profits are guaranteed, and SSP entry improves users’ welfare and social welfare.