Dynamic Pricing on E-commerce Platform with Deep Reinforcement Learning: A Field Experiment

In this paper we present an end-to-end framework for addressing the problem of dynamic pricing (DP) on E-commerce platform using methods based on deep reinforcement learning (DRL). By using four groups of different business data to represent the states of each time period, we model the dynamic pricing problem as a Markov Decision Process (MDP). Compared with the state-of-the-art DRL-based dynamic pricing algorithms, our approaches make the following three contributions. First, we extend the discrete set problem to the continuous price set. Second, instead of using revenue as the reward function directly, we define a new function named difference of revenue conversion rates (DRCR). Third, the cold-start problem of MDP is tackled by pre-training and evaluation using some carefully chosen historical sales data. Our approaches are evaluated by both offline evaluation method using real dataset of Alibaba Inc., and online field experiments starting from July 2018 with thousands of items, lasting for months on Tmall.com. To our knowledge, there is no other DP field experiment using DRL before. Field experiment results suggest that DRCR is a more appropriate reward function than revenue, which is widely used by current literature. Also, continuous price sets have better performance than discrete sets and our approaches significantly outperformed the manual pricing by operation experts.
Comment: 9 pages, 7 figures