Dynamic allocation and pricing problems occur in numerous frameworks, including the pricing of seasonal goods in retail, the allocation of a fixed inventory in a given period of time, and the assignment of personnel to incoming tasks. Although most of these problems deal with issues treated in the mechanism design literature, the modern revenue management (RM) literature focuses instead on analyzing properties of restricted classes of allocation and pricing schemes. In this book, Alex Gershkov and Benny Moldovanu propose an approach to optimal allocations and prices based on the theory of mechanism design, adapted to dynamic settings.

Drawing on their own recent work on the topic, the authors describe a modern theory of RM that blends the elegant dynamic models from the operations research (OR), management science, and computer science literatures with techniques from the classical mechanism design literature. Illustrating this blending of approaches, they start with well-known complete information, nonstrategic dynamic models that yield elegant explicit solutions. They then add strategic agents that are privately informed and then examine the consequences of these changes on the optimization problem of the designer. Their sequential modeling of both nonstrategic and strategic logic allows a clear picture of the delicate interplay between dynamic trade-offs and strategic incentives. Topics include the sequential assignment of heterogeneous objects, dynamic revenue optimization with heterogeneous objects, revenue maximization in the stochastic and dynamic knapsack model, the interaction between learning about demand and dynamic efficiency, and dynamic models with long-lived, strategic agents.

Alex Gershkov is Associate Professor of Economics at the Hebrew University of Jerusalem.

Benny Moldovanu is Professor of Economics at the University of Bonn.

Endorsements

“These engaging lectures by Gershkov and Moldovanu provide an immersing introduction into the recent research on dynamic mechanism design to which the authors have made important and central contribution. With this book, we are fortunate to receive marvelous insights into their own productive research agenda as well as a first comprehensive, and overdue introduction into dynamic mechanism design.”

—Dirk Bergemann, Douglass and Marion Campbell Professor of Economics, Yale University; coauthor of Robust Mechanism Design

“This book brings together in one place the authors' recent stream of substantial and important research on the microeconomic foundations of dynamic pricing and revenue management. Concert, sport, theater, and media businesses besides the airline and hospitality industries are using these practices, and researchers interested in getting a deep understanding of these topics would find this book immensely valuable.”

—Kalyan Talluri, Professor of Operations Management, Imperial College Business School, London

“The authors have been at the forefront of applying the tools of modern mechanism design to problems of optimal dynamic pricing with strategic agents. This monograph nicely outlines their research and provides a wealth of new ideas. It is a must-read for any researcher or graduate student with an interest in dynamic markets.”

—Ilya R. Segal, Roy and Betty Anderson Professor in the Humanities and Sciences, Department of Economics, Stanford University