In this article, we analyze the temporal pricing and advertising strategy of a monopolist with a fixed inventory to sell over a finite horizon. The arrival of the customers is modeled by a Poisson process where the arrival rate is given by an increasing convex function of the advertising expenditure, and the willingness of a customer to pay is modeled by a decreasing function of the price. For specific functions for the arrival rate and willingness-to-pay, we derive and solve a system of ordinary differential equations for the optimal pricing and advertising strategy. We show that this optimal strategy is very close to a fixed optimal strategy.
Revenue Management with Dynamic Pricing and AdvertisingFaculty Publications
Citation InformationMacdonald, Leo and Henning Rasmussen. "Revenue Management with Dynamic Pricing and Advertising." Journal of Revenue and Pricing Management 9.1-2 (2010): 126-36. Print.