Dynamic Pricing of Items Based on Estimated Demand For the Item

Abstract

A method of dynamically adjusting prices of items using a processor based upon the demand for the item based upon offering the item at different prices during different time periods.

1 . A method, comprising:
 sending a first price of an item for sale from a processor to one or more clients over a network;   receiving one or more orders for the item at the first price from one or more of the clients;   determining demand for the item based at least in part on the one or more orders received;   delivering the item to the clients that ordered the item at the first price;   pricing the item at a second price with the processor based at least on the determined demand for the item; and   sending the second price over the network to at least one of the clients.   
     
     
         2 . The method of  claim 1 , wherein the item wherein the item is selected from a group including music, text, a video content, a picture, tickets or software. 
     
     
         3 . The method of  claim 1 , wherein said determining demand step includes estimating a demand curve for the item. 
     
     
         4 . The method of  claim 3 , wherein said estimating a demand curve step includes the step of utilizing a logarithmic demand curve. 
     
     
         5 . The method of  claim 4 , wherein the utilized logarithmic demand curve is expressed by the equation Log[q]=α−βp, where Log[ ] is a natural logarithm, q is the quantity of an item, p is the price of the item and α and β are parameters. 
     
     
         6 . The method of  claim 5 , wherein the values of α and β are estimated utilizing data observed through sales of the item. 
     
     
         7 . The method of  claim 1 , wherein said delivering the item includes transmitting the item from the processor to the clients that ordered the item at the first price over the network. 
     
     
         8 . A method, comprising:
 establishing a first time period;   sending a first price of an item for sale from a processor to one or more clients over a network during the established first time period;   receiving one or more orders for the item at the first price from one or more of the clients during the established first time period;   storing the first price and quantity of the orders received for the item during the established first time period in memory accessible by the processor;   establishing a second time period;   sending a second price for the item for sale from the processor to one or more clients over a network during the established second time period;   receiving one or more orders for the item at the second price from one or more of the clients during the established second time period;   storing the second price and quantity of the orders received for the item during the established second time period in memory accessible by the processor;   calculating using the processor whether a profit realized for sales of the item during the first time period is greater than a profit realized for sales of the item during the second time period utilizing a cost of the item (c) and the stored first price (p 1 ) and quantity of the orders received (q 1 ) for the item during the established first time period and the stored second price (p 2 ) and quantity (q 2 ) of the orders received for the item during the established second time period;   utilizing an estimated demand curve to set a third price (p 3 ) for the item during a third time period wherein the third price is selected as an estimate of the price that will optimize profits.   
     
     
         9 . The method of  claim 8 , wherein said utilizing an estimated demand curve step includes the step of utilizing a logarithmic demand curve. 
     
     
         10 . The method of  claim 9 , wherein the utilized logarithmic demand curve is expressed by the equation Log[q]=α−βp, where Log[ ] is a natural logarithm, q is the quantity of an item, p is the price of the item and a and  13  are parameters. 
     
     
         11 . The method of  claim 10  wherein the third price (p 3 ) is calculated utilizing the equation: 
       
         
           
             
               
                 p 
                 3 
               
               = 
               
                 
                   ( 
                   
                     1 
                     + 
                     c 
                   
                   ) 
                 
                 β 
               
             
           
         
       
       where c is the cost of the item and β is the parameter from the utilized logarithmic demand curve. 
     
     
         12 . The method of  claim 11  further comprising estimating a value for β is estimated utilizing the stored first price (p 1 ) and quantity of the orders received (q 1 ) for the item during the established first time period and the stored second price (p 2 ) and quantity (q 2 ) of the orders received for the item during the established second time period. 
     
     
         13 . The method of  claim 12  wherein the estimating a value for β step includes utilizing the equation: 
       
         
           
             
               β 
               = 
               
                 
                   { 
                   
                     
                       Log 
                        
                       
                         [ 
                         
                           q 
                           2 
                         
                         ] 
                       
                     
                     - 
                     
                       Log 
                        
                       
                         [ 
                         
                           q 
                           1 
                         
                         ] 
                       
                     
                   
                   } 
                 
                 
                   ( 
                   
                     
                       p 
                       1 
                     
                     - 
                     
                       p 
                       2 
                     
                   
                   ) 
                 
               
             
           
         
       
       wherein Log[ ] is a natural logarithm. 
     
     
         14 . The method of  claim 8  wherein the first time period and the second time period are of equal duration. 
     
     
         15 . The method of  claim 8  wherein a dampening function is utilized to limit fluctuations between the third price and the second price.