Algorithmic pricing is the practice of automatically setting the requested price for items for sale, in order to maximize the seller's profits.
Dynamic pricing algorithms usually rely on one or more of the following data.
* Probabilistic and statistical information on potential buyers; see
Bayesian-optimal pricing Bayesian-optimal pricing (BO pricing) is a kind of algorithmic pricing in which a seller determines the sell-prices based on probabilistic assumptions on the valuations of the buyers. It is a simple kind of a Bayesian-optimal mechanism, in which t ...
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* Prices of competitors. E.g., a seller of an item may automatically detect the lowest price currently offered for that item, and suggest a price within $1 of that price.
* Personal information of the currently active buyer, such as her or his demographics and her or his interest in the product. If the seller detects that you are about to buy, your price goes up.
* Business information of the seller, such as the expected date in which he or she is going to receive new stocks, or her or his target selling velocity in units per day.
See also
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Algorithmic trading
Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of ...
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Contribution margin Contribution margin (CM), or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. "Contribution" represents the portion of sales revenue that is not consumed by variable costs and so contributes to the covera ...
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Price optimization software
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Pricing
Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acqui ...
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Tacit collusion
Tacit collusion is a collusion between competitors, which do not explicitly exchange information and achieving an agreement about coordination of conduct. There are two types of tacit collusion - concerted action and conscious parallelism. In a ...
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Yield management
Yield management is a variable pricing strategy, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, time-limited resource (such as airline seats or hotel room reservation ...
References
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Pricing