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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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    • 2025
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    Warnings and Endorsements: Improving Human-AI Collaboration in the Presence of Outliers

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    ReUp Education: Can AI Help Learners Return to College?

    By: Kris Ferreira, Christopher Thomas Ryan and Sarah Mehta
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    Demand Learning and Pricing for Varying Assortments

    By: Kris Ferreira and Emily Mower
More from the Authors
  • Warnings and Endorsements: Improving Human-AI Collaboration in the Presence of Outliers By: Matthew DosSantos DiSorbo, Kris Ferreira, Maya Balakrishnan and Jordan Tong
  • ReUp Education: Can AI Help Learners Return to College? By: Kris Ferreira, Christopher Thomas Ryan and Sarah Mehta
  • Demand Learning and Pricing for Varying Assortments By: Kris Ferreira and Emily Mower
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