A Statistical Learning Approach to Personalization in Revenue Management

Abstract

We consider a logit model based framework for modeling joint pricing and assortment decisions that take into account customer features. This model provides a significant advantage when one has insufficient data for any one customer and wishes to generalize learning about one customer's preferences to the population. Under the multinomial model, we establish finite-sample convergence guarantees on the model parameters. The parameter convergence guarantees are then extended to out-of-sample performance guarantees in terms of revenue, in the form of a high-probability bound on the gap between the expected revenue of the best action taken under the estimated parameters and the revenue generated by a decision-maker with full knowledge of the choice model.

Keywords: revenue management, statistical learning