Identifying Arbitrage Opportunities in Retail Markets using Predictive Analytics

38 Pages Posted: 8 Feb 2021 Last revised: 25 Jan 2022

See all articles by Jitsama Tanlamai

Jitsama Tanlamai

HEC Montreal - Department of Logistics and Operations Management

Warut Khern-am-nuai

McGill University - Desautels Faculty of Management

Yossiri Adulyasak

HEC Montréal

Date Written: January 23, 2022

Abstract

While the body of literature on arbitrage opportunity identification is well established in the financial, energy, and real-estate markets, research on arbitrage in the retail marketplace is relatively limited. As arbitrage opportunities in this context differ inherently from other markets, we propose a data analytics framework to identify such an arbitrage opportunity by leveraging a machine learning model to predict the optimal purchasing point from the price movement. Our predictive approach is enhanced by incorporating user-generated content which demonstrates its informative power. Overall, the enhanced model attains the precision rate of more than 90 percent while the recall rate is higher than 80 percent in a cross-validation test using the data collected from Amazon Marketplace. In addition, we conduct a field experiment to verify the external validity of the model in a real-life setting. The result shows that our model performs exceptionally well and reaffirms the economic value of our predictive approach.

Keywords: arbitrage, user-generated content, predictive analytics, field experiment, random forest

Suggested Citation

Tanlamai, Jitsama and Khern-am-nuai, Warut and Adulyasak, Yossiri, Identifying Arbitrage Opportunities in Retail Markets using Predictive Analytics (January 23, 2022). Available at SSRN: https://ssrn.com/abstract=3764048 or http://dx.doi.org/10.2139/ssrn.3764048

Jitsama Tanlamai

HEC Montreal - Department of Logistics and Operations Management ( email )

3000, chemin de la Côte-Ste-Catherine
Montreal, Quebec H3T 2A7
Canada

Warut Khern-am-nuai (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Yossiri Adulyasak

HEC Montréal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

HOME PAGE: http://yossiri.info/

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