Dynamic Pricing of Items Based on Estimated Demand For the Item
A method of dynamically adjusting prices of items using a processor based upon the demand for the item based upon offering the item at different prices during different time periods.
1 . A method, comprising:
sending a first price of an item for sale from a processor to one or more clients over a network;
receiving one or more orders for the item at the first price from one or more of the clients;
determining demand for the item based at least in part on the one or more orders received;
delivering the item to the clients that ordered the item at the first price;
pricing the item at a second price with the processor based at least on the determined demand for the item; and
sending the second price over the network to at least one of the clients.
2 . The method of claim 1 , wherein the item wherein the item is selected from a group including music, text, a video content, a picture, tickets or software.
3 . The method of claim 1 , wherein said determining demand step includes estimating a demand curve for the item.
4 . The method of claim 3 , wherein said estimating a demand curve step includes the step of utilizing a logarithmic demand curve.
5 . The method of claim 4 , wherein the utilized logarithmic demand curve is expressed by the equation Log[q]=α−βp, where Log[ ] is a natural logarithm, q is the quantity of an item, p is the price of the item and α and β are parameters.
6 . The method of claim 5 , wherein the values of α and β are estimated utilizing data observed through sales of the item.
7 . The method of claim 1 , wherein said delivering the item includes transmitting the item from the processor to the clients that ordered the item at the first price over the network.
8 . A method, comprising:
establishing a first time period;
sending a first price of an item for sale from a processor to one or more clients over a network during the established first time period;
receiving one or more orders for the item at the first price from one or more of the clients during the established first time period;
storing the first price and quantity of the orders received for the item during the established first time period in memory accessible by the processor;
establishing a second time period;
sending a second price for the item for sale from the processor to one or more clients over a network during the established second time period;
receiving one or more orders for the item at the second price from one or more of the clients during the established second time period;
storing the second price and quantity of the orders received for the item during the established second time period in memory accessible by the processor;
calculating using the processor whether a profit realized for sales of the item during the first time period is greater than a profit realized for sales of the item during the second time period utilizing a cost of the item (c) and the stored first price (p 1 ) and quantity of the orders received (q 1 ) for the item during the established first time period and the stored second price (p 2 ) and quantity (q 2 ) of the orders received for the item during the established second time period;
utilizing an estimated demand curve to set a third price (p 3 ) for the item during a third time period wherein the third price is selected as an estimate of the price that will optimize profits.
9 . The method of claim 8 , wherein said utilizing an estimated demand curve step includes the step of utilizing a logarithmic demand curve.
10 . The method of claim 9 , wherein the utilized logarithmic demand curve is expressed by the equation Log[q]=α−βp, where Log[ ] is a natural logarithm, q is the quantity of an item, p is the price of the item and a and 13 are parameters.
11 . The method of claim 10 wherein the third price (p 3 ) is calculated utilizing the equation:
p
3
=
(
1
+
c
)
β
where c is the cost of the item and β is the parameter from the utilized logarithmic demand curve.
12 . The method of claim 11 further comprising estimating a value for β is estimated utilizing the stored first price (p 1 ) and quantity of the orders received (q 1 ) for the item during the established first time period and the stored second price (p 2 ) and quantity (q 2 ) of the orders received for the item during the established second time period.
13 . The method of claim 12 wherein the estimating a value for β step includes utilizing the equation:
β
=
{
Log
[
q
2
]
-
Log
[
q
1
]
}
(
p
1
-
p
2
)
wherein Log[ ] is a natural logarithm.
14 . The method of claim 8 wherein the first time period and the second time period are of equal duration.
15 . The method of claim 8 wherein a dampening function is utilized to limit fluctuations between the third price and the second price.