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An integrated product planning model for pricing and bundle selection using Markov decision processes and data envelope analysis

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  • Ferreira, Kevin D.
  • Wu, Desheng Dash

Abstract

When bundling products during the product planning stage, there are a number of possible combinations that can be offered to customers. Consider a firm that offers N distinctive products, then there are 2N-(N+1) possible bundling combinations. Now, if we wish to make pricing and bundle selection decisions, keeping in my mind limited inventory and a finite time horizon, then the size of the state space could be very large and finding an optimal solution could be impossible. To tackle this issue, we formulate an integrated model that utilizes a Markov decision process and data envelope analysis. Bundle selections are made using data envelope analysis in each decision epoch. Once the efficient bundles are selected they are priced by solving a Markov decision process using dynamic programming. Numerical examples are solved to exhibit the model's potential in solving real-world problems.

Suggested Citation

  • Ferreira, Kevin D. & Wu, Desheng Dash, 2011. "An integrated product planning model for pricing and bundle selection using Markov decision processes and data envelope analysis," International Journal of Production Economics, Elsevier, vol. 134(1), pages 95-107, November.
    • Handle: RePEc:eee:proeco:v:134:y:2011:i:1:p:95-107
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    Cited by:

    1. Ali Azadeh & Hassan Songhori & Nima Salehi, 2017. "A unique optimization model for deterministic bundle pricing of two products with limited stock," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 8(2), pages 1154-1160, November.
    2. Daniel Schubert & Christa Sys & Rosário Macário, 2022. "Customized airline offer management: a conceptual architecture," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(5), pages 553-563, October.
    3. Baldin, Andrea, 2017. "A DEA approach for selecting a bundle of tickets for performing arts events," Journal of Retailing and Consumer Services, Elsevier, vol. 39(C), pages 190-200.
    4. Li, Minqiang & Feng, Haiyang & Chen, Fuzan & Kou, Jisong, 2013. "Numerical investigation on mixed bundling and pricing of information products," International Journal of Production Economics, Elsevier, vol. 144(2), pages 560-571.

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