Optimal Control in Price Decision Making

June 01, 2020 DataCafé Season 1 Episode 4
Optimal Control in Price Decision Making
Show Notes

Optimal Control is the science of making decisions in a way that optimises a key quantity such as revenue, customer satisfaction, or quality of service.

Cake example
Bertrand has a cake. He likes cake a lot but he can overeat cake sometimes in which case he doesn’t enjoy it so much. He would like to work out how much cake he should eat today and the next and the next so that he maximises his overall enjoyment of the cake, possibly making it last a long time (but not so long that it goes stale). The development of this decision strategy is a good example of optimal control.

Airline example
When selling tickets to customers, airlines face the problem of setting the right price, which allows them to both get a satisfactory instantaneous reward but also to reserve some capacity for later demand, typically associated with a higher willingness to pay. In this context, how can they make sure such a right price is offered to the customer at each moment of time?

Interview guest Dr. Manuel Offidani, Data Scientist at easyJet.

Further Reading

Paper: An Optimal Control Problem of Dynamic Pricing (summary via researchgate)
Book: The Theory and Practice of Revenue Management (contents via Springer)
Book: Dynamic Programming and Optimal Control (summary via researchgate)

Some links above may require payment or login. We are not endorsing them or receiving any payment for mentioning them. They are provided as is. Often free versions of papers are available and we would encourage you to investigate.

Recording date: 6 Mar. 2020
Interview date: 7 Feb. 2020

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