Dynamic Pricing for Reusable Resources: The Power of Two Prices

Two Prices Unlock Big Gains for Reusable Resources How much sophistication is needed to price reusable resources, like hotel rooms and cloud computing, when usage durations are not memoryless? Surprisingly little. In “Dynamic Pricing for Reusable Resources: The Power of Two Prices,” Balseiro, Ma, and Zhang propose a class of dynamic stock-dependent policies that achieve significant improvements over static pricing by only looking at how many units are busy and ignoring how long they have been busy. Using an “insensitivity” property of loss networks, they show that optimizing within this policy class can be formulated as a tractable convex optimization problem. Better yet, the performance loss of the optimal stock-dependent policy can be achieved by a simple two-price policy: charge a high price when inventory falls below a threshold and a low price otherwise. Extensions to multiple resources and customer classes, together with extensive simulations, confirm that “just a little” dynamicity can go a long way.