Stochastic Optimal Control Models for Online Stores

Details Stochastic Optimal Control Models for Online Stores Stochastic Optimal Control Models for Online Stores

2011-03-09

arxiv.org/abs/1103.1918v2

Mathematics

Optimization and Control

Scientific paper

We present a model for the optimal design of an online auction/store by a seller. The framework we use is a stochastic optimal control problem. In our setting, the seller wishes to maximize her average wealth level, where she can control her price per unit via her reputation level. The corresponding Hamilton-Jacobi-Bellmann equation is analyzed for an introductory case. We then turn to an empirically justified model, and present introductory analysis. In both cases, {\em pulsing} advertising strategies are recovered for resource allocation. Further numerical and functional analysis will appear shortly.

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