A Robust Optimization Model for Dynamic Pricing over Finite Horizons

A robust optimization model is applied to the problem of pricing perishable products over a finite horizon with uncertain demand in this paper. This proposed approach takes into account the uncertainty of the demand without assuming a specific probability distribution, while providing insight into the corresponding optimal policy. It also allows adjustment of the level of robustness of the optimal prices to trade off performance and protection against uncertainty by two parameters namely Robust Level which resolves pricing not of a single product, but also multiple products. An attractive feature of the proposed approach is that dynamic pricing and overbooking can be considered simultaneously.