Strategic Timing and Dynamic Pricing for Online Resource Allocation

85 Pages Posted: 14 Jun 2018 Last revised: 10 Apr 2020

See all articles by Vibhanshu Abhishek

Vibhanshu Abhishek

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Mustafa Dogan

MIT Sloan School of Management

Alexandre Jacquillat

Carnegie Mellon University

Date Written: May 29, 2018

Abstract

This paper optimizes dynamic pricing and real-time resource allocation policies for a platform facing non- transferable capacity, stochastic demand-capacity imbalances, and strategic customers with heterogeneous price- and time-sensitivities. We characterize the optimal mechanism, which specifies a dynamic menu of prices and allocations. Service timing and pricing are used strategically to: (i) dynamically manage demand- capacity imbalances, and (ii) provide discriminated service levels. The balance between these two objectives depends on customer heterogeneity and customers’ time-sensitivities. The optimal policy may feature strategic idleness (deliberately rejecting incoming requests for discrimination), late service prioritization (clearing the queue of delayed customers) and deliberate late service rejection (focusing on incoming demand by rationing capacity for delayed customers). Surprisingly, the price charged to time-sensitive customers is not increasing with demand — high demand may trigger lower prices.

By dynamically adjusting a menu of prices and service levels, the optimal mechanism increases profits significantly, as compared to dynamic pricing and static screening benchmarks. We also suggest a less information-intensive mechanism that is history-independent but fine-tunes the menu with incoming demand; this easier-to-implement mechanism yields close-to-optimal outcomes.

Keywords: Dynamic Mechanism Design, Dynamic Pricing, Strategic Timing, Online Platforms.

Suggested Citation

Abhishek, Vibhanshu and Dogan, Mustafa and Jacquillat, Alexandre, Strategic Timing and Dynamic Pricing for Online Resource Allocation (May 29, 2018). Available at SSRN: https://ssrn.com/abstract=3186931 or http://dx.doi.org/10.2139/ssrn.3186931

Vibhanshu Abhishek

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

Mustafa Dogan

MIT Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

HOME PAGE: http://sites.google.com/view/mustafadogan

Alexandre Jacquillat (Contact Author)

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States
4122683517 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
364
Abstract Views
1,958
rank
94,585
PlumX Metrics