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Adaptive Tactical Pricing in Multi‐Agent Supply Chain Markets Using Economic Regimes
Author(s) -
Hogenboom Alexander,
Ketter Wolfgang,
Dalen Jan,
Kaymak Uzay,
Collins John,
Gupta Alok
Publication year - 2015
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/deci.12146
Subject(s) - competitor analysis , supply chain , industrial organization , supply chain management , product (mathematics) , dynamic pricing , order (exchange) , competition (biology) , pricing strategies , computer science , business , microeconomics , economics , marketing , ecology , geometry , mathematics , finance , biology
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.