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The Dynamic World of Pricing

The Dynamic World of Pricing

The theory of economics teaches that in a free market, a price is the result of
interaction between supply and demand. Supply and demand represent a
theoretical model for price formation. In reality, however, the
situation is less simplistic. A plethora of other important market
factors affect prices. They include subjective values, marginal
utilities, taxes, etc. Modern achievements in the field of information
technology allow continuous monitoring of the marketplace and market
participants to be able to adjust prices in
real-time. Moreover the interactions between marketplace participants are highly dynamic; rendering prices volatile.
\ \ Another important sign of the age of information is the creation of a
very unique type of marketplace. This kind of marketplace has no
physical location and virtually any person with access to the Internet
is able to transact. The largest operators of such marketplaces are
eBay Inc., Amazon.com Inc., and Buy.com. These
companies offer online platforms where buyers and sellers interact 24/7.
eBay Inc. for example, grew so large that it evolved into a unique and
significant ecosystem that is used in scientific research to validate
properties of a free market. Many online marketplaces offer services to
both individuals and smaller online retailers. For many, online
platforms like eBay have become the only place to conduct business
online and being successful online is a matter of survival. \
\ It comes at no surprise that the competition is furious in vibrant and
highly dynamic markets. The ability to offer competitive prices and to
react quickly is essential for success of any viable business,
especially in markets as volatile as the Internet. These markets are
already highly saturated and the only way to make up for low profit
margins is to increase sales volume. Many online retailers offer
hundreds or thousands of listings. With such a high number of
propositions, price adjustments, for example, have become a difficult
task to accomplish. But as someone said:
"There’s an app for that". A few online companies provide a new brand of
software called automatic
repricers. Some are standalone applications and some are included in larger frameworks called
Marketplace Optimization Software
(MpO). These services monitor the state of a particular market and adjust listing prices to match competition. MpOs offer a much greater
spectrum of services for online retailer operating on platforms similar
to the eBay model. \
\ Among all markets with highly agile price dynamics, travel related offerings stand
out the most. Hospitality and rental businesses vary their rates greatly
depending on a season, availability, last minute deals, etc. Air
carriers employ a variety of highly complex algorithms to achieve quite
a few goals such as to minimize the number of unoccupied seats, to
retain existing subscribers, to lure passengers from competing airlines,
etc. It has recently been
discovered that flight search is a mathematical problem with a staggering depth of complexity.
These elaborate pricing strategies often result in counterintuitive
results such as flying from A to B is more expensive than flying from A
to C first, and then from C to B, although fuel and time expenditures
are much higher in the later case scenario. Situations like this one are
quite common among airlines.\
\ We live in an economy where prices can change by the minute. For an
average consumer, it is difficult, if not impossible to monitor
available rates and to choose the best deal. Hopefully, there will soon
be a tool that would allow us to do just
that. An aware consumer drives competition, and the competition is
always good for the progress of our society and civilization.

Article by Resultly

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