Switchback Price Experiments with Forward-Looking Demand

原文摘要

Switchback experiments are widely used in pricing applications. We consider a retailer running such an experiment for the price of a single product, with infinite supply. In each period, the seller chooses a price from a set of predefined prices consisting of an original price and a few discounted price levels. The goal is to estimate the demand gradient at the original price to adjust the original price and improve revenue after the experiment. In our model, in each period, a unit mass of buyers arrives on the market, with values distributed based on a time-varying process. Crucially, buyers are forward-looking with a discounted utility and will choose not to purchase now if they expect to face a discounted price in the near future. We show that such forward-looking behavior introduces bias in naive estimators of the demand gradient, due to intertemporal interference. Furthermore, although experiments with only two price points are common in practice, we prove that no estimator using data from such experiments can recover the correct demand gradient, even in the limit of an infinitely long experiment with an infinitesimal price discount. Moreover, we characterize the form of the bias of naive estimators. Finally, we show that with a simple three-price-level experiment, the seller can remove the bias due to strategic forward-looking behavior and construct an estimator for the demand gradient that asymptotically recovers the truth. Our results provide practical guidance for platforms to obtain unbiased demand gradients from price experiments in the presence of forward-looking demand.

摘要来源：arXiv