When Demands Evolve Larger and Noisier: Learning and Earning in a Growing Environment

Feng Zhu, Zeyu Zheng. When Demands Evolve Larger and Noisier: Learning and Earning in a Growing Environment. International Conference on Machine Learning (ICML) 2020. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3637905.

We consider a single-product dynamic pricing problem under a specific non-stationary setting, where the underlying demand process grows over time in expectation and also possibly in the level of random fluctuation. The decision maker sequentially sets price in each time period and learns the unknown demand model, with the goal of maximizing expected cumulative revenue over a time horizon $T$. We prove matching upper and lower bounds on regret and provide near-optimal pricing policies, showing how the growth rate of random fluctuation over time affects the best achievable regret order and the near-optimal policy design. In the analysis, we show that whether the seller knows the length of time horizon $T$ in advance or not surprisingly render different optimal regret orders. We then extend the demand model such that the optimal price may vary with time and present a novel and near-optimal policy for the extended model. Finally, we consider an analogous non-stationary setting in the canonical multi-armed bandit problem, and points out that knowing or not knowing the length of time horizon $T$ render the same optimal regret order, in contrast to the non-stationary dynamic pricing problem.