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A Constraint Logic Programming Algorithm for Modeling Dynamic Pricing

Operational Research and Management Sciences, Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom, and CEMPRE, Faculdade de Economia, Universidade do Porto, 4200-464 Porto, Portugal
fernando.oliveira{at}wbs.ac.uk

We extend Lemke's algorithm to solve a dynamic pricing problem. We identify an instance in which Lemke's algorithm fails to converge to an optimal solution (when an optimum does exist) and propose a constraint logic programming solution to this problem. We analyze the complexity of the extended Lemke's algorithm. Our analysis shows that, in the short term, dynamic pricing can be used to improve resource management efficiency. It is also shown that dynamic pricing can be used to manage the long-term behavior of demand.

Key words: analysis of algorithms; artificial intelligence; constraint logic programming; dynamic pricing; revenue management; simulation
History: received March 2006; revised November 2006; accepted December 2006.

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