The combination of on-line dynamic pricing with price discrimination can be very beneficial for firms operating on the Internet. We therefore develop an on-line dynamic pricing algorithm that can adjust the price schedule for a good or service on behalf of a firm. This algorithm (a multi-variable derivative follower with adaptive step-sizes) is able to respond very quickly to changes in customers' demand. An additional advantage of the developed algorithm is that it does not require information about individual customers. Given the growing concern about customers' privacy this can be of great practical importance. Computational experiments (with different customer behavior models) indicate that our algorithm is able to successfully exploit the potential benefits of on-line price discrimination.

Modes of Computation (acm F.1.2), Optimization (acm G.1.6), Algorithms (acm I.1.2), Problem Solving, Control Methods, and Search (acm I.2.8), Electronic Commerce (acm K.4.4)
Learning and adaptive systems (msc 68T05), None of the above, but in MSC2010 section 90Bxx (msc 90B99), None of the above, but in MSC2010 section 90Cxx (msc 90C99)
Software (theme 1), Logistics (theme 3), Energy (theme 4)
CWI
Software Engineering [SEN]
Intelligent and autonomous systems

van Bragt, D.D.B, Somefun, D.J.A, Kutschinski, E, & La Poutré, J.A. (2002). An algorithm for on-line price discrimination. Software Engineering [SEN]. CWI.