Dynamic Pricing

Overview

Dynamic pricing adjusts prices in real-time based on demand signals, time, inventory, and competitive conditions. Common in airlines, hotels, ride-sharing, and e-commerce. Objective: maximize revenue (or profit) subject to capacity/inventory constraints.

When to Use

Trigger conditions:

• Pricing perishable inventory (hotel rooms, airline seats, event tickets)
• Implementing demand-responsive pricing for e-commerce
• Building surge pricing or time-based pricing systems

When NOT to use:

• For one-time pricing decisions (use Van Westendorp or conjoint)
• When price changes are impractical (regulated markets, long-term contracts)

Algorithm