A Stochastic Dynamic Pricing Model Affected By New Products Into The Market

With the rapid development of new technology and the increasingly fierce competition in the market, the life cycle of products are becoming much shorter. Demanding of products shifts more usual. We call them "perishable products" for which have the characteristics. And the application of dynamic pricing theory about this type of product is also attracted more and more people’s attention. However, in real-life, due to the characteristics of such products, a common phenomenon that the potential new product coming in the market in a limited sales period exists. Therefore, with change of the market, it is necessary to discuss the problem about how to dynamically adjust price to maximize the gains.This paper mainly researches the pricing strategy of dynamic old products(current products) when the new product is coming into the market. In order to analyze the influence of the uncertainty of entry timing of the new products on pricing of products being sold, this paper carries the time t as a stochastic variable, and under this condition, a stochastic dynamic pricing model is constructed. In this paper, we will regard the merchant’s total revenue maximum about current product as a goal. By using the stochastic dynamic programming method and starting from the pricing strategy, two basic strategies, i.e., maximizing current period’s profit and cutting price for promotion were given. Compared with the two strategies, we get the conclusion that if the probability of launching new products next phase is less than or equal to a marginal value, merchant will not carry out promotion tactics. If the probability is greater than the marginal value, merchant will implement promotional strategy until the new product going into the market. Issues discussed in this article not only provide some guiding significant in the dynamic pricing for merchant but also has a certain practical significance.