Non-linear Pricing and Bidding Optimization Model
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Solution Overview
Problem
Conventional systems fail to determine the optimal prices and advertising bids for sellers due to the interdependence between price elasticity of demand and advertising through advertising bidding systems, particularly due to the non-linear relationship between product pricing and advertising expenditures in complex advertising strategies across multiple venues.
Innovation Solution
A system and method that uses a non-linear model to determine the optimal combination of sale prices and advertising bids by collecting data from multiple advertising venues, employing a logging engine to gather data, an optimization engine to analyze it, and iteratively adjusting prices and bids to maximize profits, while accounting for untraceable consumer data through a data distributor.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If a seller uses conventional linear advertising models to determine pricing and bidding, then the system is simple to operate, but it cannot accurately capture the non-linear relationship between advertising expenditures and demand, leading to suboptimal profit maximization
Solution Approach 1:
The patent transforms the advertising model from linear to non-linear by introducing elasticities (ad elasticity, price elasticity) as key parameters. This allows the model to capture the non-linear relationship between advertising expenditures and demand, enabling accurate profit maximization while maintaining manageable system complexity through structured parameter estimation.
Solution Approach 2:
The system implements iterative optimization where the optimization engine uses collected data to update pricing and bidding parameters continuously. This feedback mechanism allows the system to learn from actual performance and refine its non-linear models, improving measurement precision while distributing computational complexity across multiple processing stages.
2Measurement precision
If a seller collects and processes detailed data from multiple advertising venues to optimize pricing and bidding, then profit maximization accuracy improves, but the complexity of data collection and processing increases
Solution Approach 1:
The patent divides the complex data collection and processing system into distinct functional modules: a logging engine for data collection, a data distributor for data management, and an optimization engine for analysis. This segmentation reduces overall system complexity by making each component's function clear and manageable while collectively achieving accurate profit maximization through integrated operation.
3Measurement precision
If a seller iteratively adjusts prices and advertising bids to maximize profits, then optimization accuracy improves, but the time required for computation and implementation increases
Solution Approach 1:
The system performs preliminary data collection and modeling during off-peak times or in advance, building up the non-linear models and elasticity parameters before actual optimization is needed. This preliminary preparation reduces the time required for iterative adjustments during active business operations, as the optimization engine can work with pre-computed models rather than calculating everything in real-time.
Data Source
AI summary
A system and method maximize profits by determining the optimal combination of sale price for a product and bids for advertising. The system and method address the non-linear relationship between product pricing and advertising through an advertising bidding system. In particular, a seller sells a product at a plurality of sale prices and buys the at least one advertisement by submitting a plurality of bid prices to the at least one advertising venue, resulting in a combination of bid prices for the at least one advertisement at each of the plurality of sale prices. Data from advertising with each of the at least one advertisement is collected. Then, a non-linear model for pricing and bidding is determined from the collected data, and an optimal price for the product and an optimal advertising bid for each of the at least one advertisement is determined from the non-linear model.