Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions

TLDR

Dynamic pricing has long benefited fixed‑capacity sectors such as airlines and hotels, and its recent adoption in retail with inventory is driven by richer demand data, easier price changes via technology, and advanced decision‑support tools. This review examines dynamic intertemporal pricing that incorporates inventory considerations, given its broad applicability and growing industry adoption. The authors conduct a comprehensive survey of existing dynamic pricing models and practices that integrate inventory management.

Abstract

The benefits of dynamic pricing methods have long been known in industries, such as airlines, hotels, and electric utilities, where the capacity is fixed in the short-term and perishable. In recent years, there has been an increasing adoption of dynamic pricing policies in retail and other industries, where the sellers have the ability to store inventory. Three factors contributed to this phenomenon: (1) the increased availability of demand data, (2) the ease of changing prices due to new technologies, and (3) the availability of decision-support tools for analyzing demand data and for dynamic pricing. This paper constitutes a review of the literature and current practices in dynamic pricing. Given its applicability in most markets and its increasing adoption in practice, our focus is on dynamic (intertemporal) pricing in the presence of inventory considerations.