How much do you charge for a service that’s expensive to provide, but worthless the moment it expires? That’s the challenge that many service industries, such as hotels and airlines, face every day. It’s also an active area of economic research. To explore these questions, a team of researchers has run the Dynamic Pricing Competition for the past three years. The most recent winners were just announced, and I won the Duopoly competition.
The contest consists of three separate scenarios. In the duopoly contest, two rival airlines face off. The oligopoly challenge simulates a small group of retailers each selling three goods. The dynamic challenge is a large-scale e-commerce pricing contest.
For each of these, contestants submit code that implements their pricing strategy. Then each night the simulations are run putting the strategies into competition with one another. The exact demand function is unknown to contestants and can change over the course of the simulation. Competitors can see how they ranked in the nightly results and tweak their code accordingly. Code must run within set time limits and have a minimal error rate (see details).
This contest is a great way to approach research questions around pricing strategy. It is the best use of modern research methods in economics that I have come across. I am grateful to the organizers and all the contestants, and look forward to next year’s competition!