Dynamic pricing horror stories

The hotel industry has accepted these principles behind revenue management and dynamic prices. Many of these dynamic pricing strategies are driven by OR- or analytics-based models, too. Too much of a good idea can turn into the opposite of the original intent. Indeed, drastic changes in prices caused by complex real-time pricing strategies can confuse the customer about what is your value proposition.

Let’s take the example of hotels. Hotel cost structure is pretty much all fixed costs; if it is full, it makes money, and when it’s close to empty, it loses money. As there are times of the year where demand is less, they need to make the most of good periods. Adjusting prices to the demand is one basic idea behind revenue management. Another rule – which has been used by airline companies to great effect – is to have different prices for the same seat depending on the time at which the seat is bought and with varying levels of flexibility towards cancellation or date changes.

While as a customer I accept the concept that prices are dynamic, I don’t like prices to fluctuate too much during the time in which I’m trying to arrange travel. If I try to book a hotel which is 100$, I don’t like it when it’s gone to 145$ five minutes later. It happens often to me when I travel by train in Canada, as VIA Rail is often prone to offer huge discounts on a very small number of seats.

Dynamic pricing can also create other distortions. Last November, I was in Brussels for an industrial conference. I wanted to stay at the hotel hosting the conference, but the cost was prohibitive 180 Euros per night. Ouch! On hotel booking websites, the price per night was even higher at around 200 Euros per night (approx. 300 USD). It’s only natural to raise prices when there is higher demand, up to a certain point. For instance, the day before the conference and the day after, I was able to stay there – in the same type of room – for about 50 euros per night. For me, the optimal plan was to stay at that hotel the day before the conference, move to a cheaper hotel during the time of the conference, then get back to the hotel the night before departure.

It’s difficult not to feel robbed when you realize that you – or somebody else – was paying four times less for the same room just one day before.

ILS 2014, a buffet of logistics and OR

This post was originally written for OR Complete. I re-post it here in case you missed the original posting.

ILS – a short name for the International Conference on Information Systems, Logistics and Supply Chain, is a bi-annual conference focusing on global supply chain and logistics management, with a focus on information systems and decision support systems. The attendance comes mainly from European and North American researchers, but there were also participants from Tunisia, Morocco and Korea.  It’s a small but very specialized scientific conference, attracting between 50 to 100 presentations. The number is limited mostly because in order to present, you must submit a 8 to 10-page paper, which is subject to a double peer-review. [Continue reading]

Uncertainty, Models, and the Chaos Out There

Future is dominated by uncertainty. In terms of supply chain management – my main field of application – it comes in terms of variation in lead times or demand levels, or in the form of severe events such as hurricanes which can severely disrupt a … [Continue reading]

Seeds and Parallel MIP solvers, part I

RandomSeeds-SLSM-Gurobi

Over recent years, mixed-integer programming (MIP) solver developers worked really hard to provide parallel codes that are both fast and quite stable. A few years ago, using a parallel code resulted in huge variations in run times: successive runs of … [Continue reading]

Building the perfect MIPping machine [dual]

Yesterday’s post explained why I prefer run solver on fast machines over big machines and gave a short example why. In today’s post, I provide some very personal guidelines on how to determine what kind of machine you might need to solve MIPs.  … [Continue reading]

Do you need a bigger computer to solve this MIP? [primal]

When I have difficult time solving a mixed-integer optimization problem (MIP), one of the most common reflexes is to run the problem on a bigger or faster machine.  However, when solving MIPs, throwing more processor power at a problem will not … [Continue reading]

Things you learn in a Ph.D. that are not written in textbooks

Those are things I learned during the first phase of my experimentation over the course of my Ph.D (year 2 of 4) There is a story behind each of this statements; I may blog about some of them if there is interest in it and I find the time to write … [Continue reading]

There and back again

If your academic work is related to computation, chances are that once in a while you have to scrap a set of experiments and start over. It just happened to me again about two weeks ago. While I and a colleague were doing what is mostly a computation … [Continue reading]

Supply chain network design in 500 words

I've spent more time working on supply chain network (SCN) design problems than any other. This post summarizes the topic. What is supply chain network design? SCN design is a strategic problem arising in logistics and supply chain management. … [Continue reading]

LP file format: uses and intricacies

LP is one of the most popular formats for explicit description of an optimization model (the other contender being MPS). It uses an algebraic format where you enter the problem's objective function and constraints line by line. For the last few years … [Continue reading]