Faculty of Business Administration
Electronics Business

Dynamic Pricing and Inventory Control with Nonparametric Demand Learning

Prof. Chao Xiuli
Professor, Department of Industrial and Operations Engineering
University of Michigan at Ann Arbor, USA


We consider a retailer selling a single nonperishable product over a finite horizon. Demand is stochastic and price-dependent. At the beginning of each period, the firm determines its selling price and inventory replenishment decisions, but it knows neither the dependency of demand on selling price nor the distribution of demand uncertainty, hence it has to make pricing and ordering decisions only based on historical demand data. We propose a nonparametric data-driven policy that learns the demand-price relationship and the random error distribution on the fly. The policy integrates the phases of exploration and exploitation and converges to the true optimal solution. Besides convergence of optimal policies, we also establish the convergence rate of the regret, defined as the profit loss compared with that of the optimal solution when the firm had known the random demand information. This is joint work with Beryl Chen and Hyun-Soo Ahn.

Date: March 9, 2015 (Monday)

Time: 10:30~12:00

Venue: Faculty of Business Administration, E22-1008

A Short Biography of Prof. Chao
Prof. Chao Xiuli serves as Professor, Department of Industrial and Operations Engineering, University of Michigan at Ann Arbor, USA. He is currently on sabbatical leave at the business school of Hong Kong University of Science and Technology. His research interests include stochastic modelling and optimization, queueing, inventory control, and supply chain management. He is the co-author of two books, Operations Scheduling with Applications in Manufacturing and Services (Irwin/McGraw-Hill, 1998), and Queueing Networks: Customers, Signals, and Product Form Solutions (John Wiley & Sons, 1999). Prof. Chao received the 1998 Erlang Prize from the Applied Probability Society of INFORMS, and in 2005 he received the David F. Baker Distinguished Research Award from Institute of Industrial Engineers (IIE). He holds a doctoral degree in Operations Research from Columbia University.