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Hardness of pricing loss leaders. Yi Wu IBM Almaden Research Joint work with Preyas Popat. Introduction. Example: supermarket pricing. Buy coffee and alcohol if under 15$. Buy cereal and milk if under 10$. How to price items to maximize profit?.

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Hardness of pricing loss leaders

Hardness of pricing loss leaders

Yi Wu

IBM Almaden Research

Joint work with PreyasPopat



Example supermarket pricing
Example: supermarket pricing

Buy coffee and alcohol if under 15$

Buy cereal and milk if under 10$

How to price items to maximize profit?

Buy coffee and milk if under 7$


Problem definition
Problem Definition

  • Input:

    • items.

    • buyers. each of the buyer is interested in a subset of the items with budget

    • single minded valuation: buyer buy either all the items in if the total price is less than or buy nothing.

  • Algorithmic task: price item with profit margin to maximize the overall profit.


Special case hypergraph pricing
Special case: -hypergraph pricing

  • -hypergraph pricing: each buyer is interested in at most of the items.

  • Graph pricing: each buyer is interested in at most of the items.


Special case highway pricing
Special case: highway pricing

  • Items are aligned on a line and each buyer is interested in buying a path (consecutive items).

Driver 2

Driver 3

Driver 1


Previous work
Previous Work

For item pricing with items m buyers:

 -approximation [Guruswami et al.]

hard[Demain et al.]

For -hypergraph pricing

 O()-approximation [Balcan-Blum]

 4-approximaiton for graph pricing (k=2) [Balcan-Blum 06]

17/16-hard [Khandekar-Kimbrel-Makarychev-Sviridenko 09],

2-hard assuming the UGC (Unique Games Conjecture)

For highway problem

PTAS [Grandoni-Rothvoss-11]

 NP-hard[Elbassioni-Raman-Ray-09]

All the previous work assumes that the profit margin is positive for every item.


E xample
Example

30

1

2

10

10

3


Optimal positive pricing strategy
Optimal Positive Pricing Strategy

30

30

0

1

2

10

10

3

10

Profit is 40.


Even better strategy
Even better strategy

15

30

15

1

2

10

10

Loss leader

3

-5

Profit is 50.


Loss leaders
Loss leaders

  • Definition: Aloss leaderis a product sold at a low price (at cost or below cost) to stimulate other profitable sales.

  • Example of loss leader

    • Printer and ink

    • E-book reader and E-book

    • Movie ticket and popcorn and drink


Discount model
Discount model

  • Discount Model

    [Balcan-Blum-Chan-Hajiaghayi-07]

    The seller assign a profit margin to each item and have profit with the buyer interested in set if the buyer purchase the item.

What if the production cost is 0 such as the highway problem?


Coupon model
Coupon Model

  • Coupon Model

    [Balcan-Blum-Chan-Hajiaghayi-07]

    The seller assign a profit margin to each item and have profit with the buyer interested in set


Profitability gap
Profitability gap

[Balcan-Blum 06]: The maximum profit can be log n-times more when loss leaders are allowed (under either coupon or discount model).


Open problem baclan blum 06
Open Problem [Baclan-Blum 06]

  • What kind of approximation is achievable for the item pricing problems with prices below cost allowed?


Make a guess
Make a guess:

  • [Balcan-Blum-Chan-Hajiaghayi-07]: “Obtaining constant factor appropriation algorithms in the coupon model for general graph vertex pricing problem and the highway problem with arbitrary valuations seems believable but very challenging.”



Our results
Our results:

  • For 3-hypergraph pricing problem, it is NP-hard to get better than -approximation under either the coupon or discount model. [W-11, Popat-W-11]

  • For graph vertex pricing (i.e.,) and the highway pricing problem, it is UG-hard to get constantapproximation under the coupon model. [Popat-W-11]




Item pricing a special max csp
Item pricing: a special Max-CSP

  • The pricing problem is also a CSP.

    • Variable:

    • Constraint: each buyer interested in with valuation is a constraint with the following payoff function:

      • Discount model:

      • Coupon Model:


D ictator test for item pricing
Dictator Test for item pricing

  • A instance of item pricing with items indexed by

  • A pricing function is a function defined on


C s dictator test
(c,s)-dictator Test.

  • Completeness

    • There exists some function such that for every , the pricing function has a good profit .

  • Soundness

    • For non-dictator function, it has profit .

[Khot-Kindler-Mossel-O’Donnell-07]:assuming the Unique Games Conjecture, it is NP-hard to get better than -approximation.



Hastad s 1 dictator test for
Hastad’s (1-Dictator Test for

  • Generate and randomly.

  • Generate such that each with probability and random from with probability .

  • Randomly generated a and add a equation


Analysis of hastad s test informal proof
Analysis of Hastad’s Test(informal proof)

  • Completeness: if , this will satisfy fraction of the equations.

  • Soundness:

    • Technical Lemma [Austrin-Mossel-09]: non-dictator function can not distinguish the difference between pairwise independent distribution and fully independent distribution on .


Equivalent test for non dictator 1
Equivalent Test for non-dictator (1)

  • Generate and randomly

  • Add a equation


Equivalent test for non dictator 2
Equivalent Test for non-dictator (2)

  • Generate and randomly

  • Add a equation

Passing probability is 1/q.


The dictator test for 3 hypergraph pricing
The Dictator Test for 3-hypergraph pricing

  • Generate and randomly.

  • Generate such that each with probability and random with probability .

  • For every Add a buyer interested in )with budget .


Completeness
Completeness

  • For , we know that with probability we have that and Then for

    The profit is then at least

Completeness c = q log q.


Soundness analysis equivalent test for non dictator 1
Soundness Analysis:Equivalent test for non-dictator (1)

  • Generate randomly.

  • Add a buyer interested in with budget for every


Equivalent test for non dictator 21
Equivalent test for non-dictator (2)

  • Generate randomly.

  • Add a buyer interested in with budget for every .

    Then for any , suppose , then the profit is at most

Soundness is q.


Things not covered
Things not covered

  • Real valued price function.

  • NP-hardness reduction

  • Discount model



Khot kindler mossel o donnell s dictator test for
Khot-Kindler-Mossel-O’Donnell’s Dictator Test for

  • Generate randomly and such that with probability and random in with probability

  • For every add a equation


Informal proof kkmo 1
Informal Proof KKMO (1)

  • Notation: as the the indicator function of whether .

  • Let us assume (without justify) that is balanced; i.e., for every

  • Key Technical Lemma: for any non-dictator , if , then



A candidate test for graph pricing
A Candidate Test for graph pricing

  • Generate randomly and such that with probability and random in with probability

  • For every add a buyer interested in with budget

We can not prove the soundness claim for this test.


Dictator test for graph pricing
Dictator Test for graph pricing

  • Generate randomly and such that with probability and random in with probability

  • For every add a buyer interested in with budget


Thing not covered
Thing not covered

  • Unbalanced price function

  • Real value price function


Highway problem
Highway problem

  • Lemma 1: The approximability of bipartite graph pricing is equivalent to highway problem on bipartite graph.

  • Lemma 2: Super-constant hardness of graph pricing also implies super-constant hardness of bipartite graph pricing.


Proof of lemma1
Proof of Lemma1.

  • Suppose we have n segments of highway with price The constraints are of the form .

  • If we change the valuable to then the constraint becomes

  • On bipartite graph for highway problem, we can make the constraint


Proof of lemma 2
Proof of Lemma 2.

  • Given a non-bipartite instance G, we can randomly partition the graph into two parts G’ and only consider the bipartite sub-graph.

  • We know that for any price function, the profit change by a factor of 2in expectation.


Conclusion
Conclusion

  • Pricing loss leaders is hard even for the those tractable cases under the positive profit prices model.


Open problem
Open Problem

  • Getting better upper and lower bound for hypergraph pricing problem

  • Can we have a -dictator test for CSP of the form for


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