Adaptive Tactical Pricing in Multi-Agent Supply Chain Markets Using Economic Regimes

Alexander Hogenboom, Wolfgang Ketter, Jan van Dalen, Uzay Kaymak, John Collins, Alok Gupta

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

In today's complex and dynamic supply chain markets, information systems are essential for effective supply chain management. Complex decision making processes on strategic, tactical, and operational levels require substantial timely support in order to contribute to organizations' agility. Consequently, there is a need for sophisticated dynamic product pricing mechanisms that can adapt quickly to changing market conditions and competitors' strategies. We propose a two-layered machine learning approach to compute tactical pricing decisions in real time. The first layer estimates prevailing economic conditions-economic regimes-identifying and predicting current and future market conditions. In the second layer, we train a neural network for each regime to estimate price distributions in real time using available information. The neural networks compute offer acceptance probabilities from a tactical perspective to meet desired sales quotas. We validate our approach in the trading agent competition for supply chain management. When competing against the world's leading agents, the performance of our system significantly improves compared to using only economic regimes to predict prices. Profits increase significantly even though the prices and sales volume do not change significantly. Instead, tactical pricing results in a more efficient sales strategy by reducing both finished goods and components inventory costs.

Original languageEnglish (US)
Pages (from-to)791-818
Number of pages28
JournalDecision Sciences
Volume46
Issue number4
DOIs
StatePublished - Aug 1 2015

Bibliographical note

Publisher Copyright:
© 2015 Decision Sciences Institute.

Copyright:
Copyright 2015 Elsevier B.V., All rights reserved.

Keywords

  • Auctions
  • Dynamic Pricing
  • Economic Regimes
  • Multi-agent systems
  • Supply Chain Management

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