Dynamic Pricing with Volume Discounts in Online Settings

Authors

  • Marco Mussi Politecnico di Milano
  • Gianmarco Genalti Politecnico di Milano
  • Alessandro Nuara ML cube
  • Francesco Trovó Politecnico di Milano
  • Marcello Restelli Politecnico di Milano
  • Nicola Gatti Politecnico di Milano

DOI:

https://doi.org/10.1609/aaai.v37i13.26845

Keywords:

Online Learning, Dynamic Pricing, Bayesian Machine Learning

Abstract

According to the main international reports, more pervasive industrial and business-process automation, thanks to machine learning and advanced analytic tools, will unlock more than 14 trillion USD worldwide annually by 2030. In the specific case of pricing problems, which constitute the class of problems we investigate in this paper, the estimated unlocked value will be about 0.5 trillion USD per year. In particular, this paper focuses on pricing in e-commerce when the objective function is profit maximization and only transaction data are available. This setting is one of the most common in real-world applications. Our work aims to find a pricing strategy that allows defining optimal prices at different volume thresholds to serve different classes of users. Furthermore, we face the major challenge, common in real-world settings, of dealing with limited data available. We design a two-phase online learning algorithm, namely PVD-B, capable of exploiting the data incrementally in an online fashion. The algorithm first estimates the demand curve and retrieves the optimal average price, and subsequently it offers discounts to differentiate the prices for each volume threshold. We ran a real-world 4-month-long A/B testing experiment in collaboration with an Italian e-commerce company, in which our algorithm PVD-B - corresponding to A configuration - has been compared with human pricing specialists - corresponding to B configuration. At the end of the experiment, our algorithm produced a total turnover of about 300 KEuros, outperforming the B configuration performance by about 55%. The Italian company we collaborated with decided to adopt our algorithm for more than 1,200 products since January 2022.

Downloads

Published

2024-07-15

How to Cite

Mussi, M., Genalti, G., Nuara, A., Trovó, F., Restelli, M., & Gatti, N. (2024). Dynamic Pricing with Volume Discounts in Online Settings. Proceedings of the AAAI Conference on Artificial Intelligence, 37(13), 15560-15568. https://doi.org/10.1609/aaai.v37i13.26845

Issue

Section

IAAI Technical Track on deployed Highly Innovative Applications of AI