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  • November–December 2018
  • Article
  • Operations Research

Online Network Revenue Management Using Thompson Sampling

By: Kris J. Ferreira, David Simchi-Levi and He Wang
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Abstract

We consider a network revenue management problem where an online retailer aims to maximize revenue from multiple products with limited inventory constraints. As common in practice, the retailer does not know the consumer's purchase probability at each price and must learn the mean demand from sales data. We propose an efficient and effective dynamic pricing algorithm, which builds upon the Thompson sampling algorithm used for multi-armed bandit problems by incorporating inventory constraints into the model and algorithm. Our algorithm proves to have both strong theoretical performance guarantees and promising numerical performance results when compared to other algorithms developed for the same setting. More broadly, our paper contributes to the literature on the multi-armed bandit problem with resource constraints, since our algorithm applies directly to this setting when the inventory constraint is interpreted as a general resource constraint.

Keywords

Online Marketing; Revenue Management; Revenue; Management; Marketing; Internet and the Web; Price; Mathematical Methods

Citation

Ferreira, Kris J., David Simchi-Levi, and He Wang. "Online Network Revenue Management Using Thompson Sampling." Operations Research 66, no. 6 (November–December 2018): 1586–1602.
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About The Author

Kris Johnson Ferreira

Technology and Operations Management
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More from the Authors
  • Demand Learning and Pricing for Varying Assortments By: Kris Ferreira and Emily Mower
  • Market Segmentation Trees By: Ali Aouad, Adam Elmachtoub, Kris J. Ferreira and Ryan McNellis
  • Improving Human-Algorithm Collaboration: Causes and Mitigation of Over- and Under-Adherence By: Maya Balakrishnan, Kris Ferreira and Jordan Tong
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