M IT Sloan Sc hool of M anagemen t15.764 - T he Theory of O perations M anagemen t:Special Seminar on Dynamic PricingSpring 2003 - TTh 11:30-1, E51-149Pr o f e ss o r Jé rémie G a llie n , jga llie n @m it.edu , x3 -6 6 9 7Cour se Description:Recent advances in electronic commerce and information technology have resulted for firms in: (i) an oppor-tunity to gather massive amoun ts of quant itative information about customer behavior; and (ii) a reductionb y orders of magnitude of the cost to make price adjustments. As a result, much of the existing literature ondynamic pricing has gained considerable practical relevance, and this topic is becoming increasingly popularamong researchers in several disciplines. This recent interest in dynamic pricing models is also very muchpresent in industry, as exemplified by the ongoing ”roc ket science” revolution in retailing, and the emergenceof several pricing software prov iders such as ProfitLogic, KhiMetrics, Manugistics, i2, SpotLigh t Solutions,DemandTec, etc...This semester, the goal of the operations management seminar is precisely to provide doctoral studentswith a broad in troduction to the research literature on dynamic pricing. Although some of the seminalOperations Management papers on this topic will indeed be discussed, the seminar will still be quite multi-disciplinary and cover a large range of perspectives and modeling approaches; for this reason it may alsobe of interest to doctoral students in Mark eting, Operations Research, Information Technology and SystemDynamics (among others). The set of papers I have selected will take the class through the following topics:• Diffusion models;• Pricing of short life cycle products and revenue management ;• Multiple product models;• Adaptive pricing;• Competitive models;• Pricing to strategic customers;• Pricing and inventory management; and• Network and congestion pricing.Overall, this seminar s hould be a valuable opportunity to both learn about the classical results onpricing and find out about the current research directions and opportunities. We will main tain throughoutan informal (luncheon) setting, with the goal of stimulating an active learning environment through opendiscussions. Participating students will be individually responsible for presenting a couple of papers to theclass, so it will also be an opportunity for them to get some detailed feedback on and improve their researchpresen tation skills.Sc hedule:Most of the following papers are available to students taking the course from Sloanspace, in the class lockerfor 15.764 Theory of Operations Management (http://sloanspace.mit.edu).Class 1: Tuesday, February 4 - Organizational Session In this first class we will go over the listof papers covered. It is recommended that you read at least the first of the two following survey papers:• Elmaghraby, W., P. Keskinocak. 2002. ”Dynamic Pricing: Research Overview, Current Practices andFuture Directions,” Working paper, Georgia Institute of Technology.• Bitran, G. and R. Caldentey, ”An Overview of Pricing Models for Revenue Management,” WorkingPaper, MIT Sloan School of Management, 2002.Diffusion Models:Class 2: Thursday, February 6 - Shobhit Gupta• Bass, F., ”A New Product Growth Model for Consumer Durables,” Management Science, 15 (1969),p. 215-227.Class 3: Tuesday, February 11 - Clint Plummer (Amr Farahat)• A.P. Jeuland and R.J. Dolan (1982), ”An Aspect of New Product Planning: Dynamic Pricing,” TIMSStudies in Management Sciences 18, 1-21.Class 4: Thu rsday, February 13 - Guillaume Roels (Ping Xu)• T.V. Krishnan, F.M. Bass, D.C. Jain (1999), Optimal Pricing Strategy for New Products, ManagementScience, Vol. 45, No. 12, 1650-1663.Revenue Management - Pricing of Short Life-Cycle Products:Class 5: Thursday, February 20 - Ekaterina Lesnaia (Chee-Chong Teo)• Lazear, ”Retail Pricing and Clearance Sales,” The American Economic Review, 76 (1986), p. 14-32• B.P. Pashigian and B. Bowen (1991), Why Are Products Sold on Sale? Explanations of PricingRegularities, The Quarterly Journal of Economics, Vol. 106, No. 4, 1015-1038.Class 6: Tuesday, February 25 - Pin Xu (Suri Gurumurthi)• Gallego, G. and van Ryzin, G.J . (1994), “Optimal Dynamic Pricing of Inventories with StochasticDemand Over Finite Horizons”, Management Science, 40, 999-1020.Class 7: Thursday, February 27 - Tieming Liu (Peng Sun)• Bitran, G. and S. Mondschein, ”Periodic Pricing of Seasonal Products in Retailing,” ManagementScience, 43, p. 64-79 (1997).Class 8: Tuesda y, March 4 - Felipe Caro (Opher Baron)• Bitran, G., R. Caldentey and S.V. Mondsch ein (1998), ”Coordinating Clearance Markdown Sales ofSeasonal Products in Retail Chains,” Operations Research, Vol. 46, No. 5, 609-624.Multiple Product Models and Bundle Pricing:Class 9: Thursday, March 6 - Amr Farahat (Raphael Schorr)• Gallego, G. and van Ryzin, G.J (1997), ”A Multiproduct Dynamic Pricing Problem and Its Applicationsto Network Yield Management,” Operations Research 45, 24-41.2Class 10: Tuesday, March 11 - Emman uel Carrier (Sanne de Boer)• Awad, P., G. Bitran, S. Mondschein (2000), ”Pricing Policies for a Family of Substitute PerishableProducts,” Working paper, MIT Sloan Sc hool of Management.Class 11: Thursday, March 13 - Peng Sun (Clin t Plummer)• Bakos, J.Y. and E. Brynjolfsson, ”Bundling Information Goods: Pricing, Profits and Efficiency,” Man-agement Science, December 1999, Vol. 45, No. 12 pp. 1613-1630.Adaptive Pricing:Class 12: Tuesday, March 18 - Chee Chong Teo (Yann Le Tallec)• Balvers and Cosimano, ”Actively Learning About Demand and the Dynamics of Price Adjustment,”TheEconomicJournal, 100 (1990), p. 882-898.Class 13: Tuesda y, April 1 - Sanne de Boer (Damian Beil)• Aviv, Y. and A. Pazgal, ”Pricing of Short Life-Cycle Products Through Active Learning,” Olin Schoolof Business, Washington Univ ersity, 2002.Pricing to Strategic Customers:Class 14: Thursda y, April 3 - Michelle Cheong (Emmanuel Carrier)• Varian, H. R., ”A Model of Sales,” American Economic Review, 70 (1980), 651-659.Class 15: Tuesda y, April 8 - Raphael Schorr (Bill Drigert)• N. Stokey (1979), ”Intertemporal Price Discrimination,” Quarterly Journal of Economics, Vol. 93, No.3, pp. 355-371.Class 16: Thursday, April 10 - Damian Beil (Hasan Harslan)• Besanko, D., W. Wynston (1990), ”Optimal Pricing Skimming by a Monopolist Facing Rational Con-sumers,” Management Science