Demand-Sensitive Dynamic Pricing Using Game Theory: A Strategic Framework for Revenue Optimization in Competitive Markets

Abstract

Dynamic pricing has emerged as a pivotal strategy in competitive markets, where businesses must navigate fluctuating consumer demand and the strategic actions of competitors. This paper presents a novel framework that integrates demand sensitivity with game theory to optimize pricing strategies in such environments. By modeling the interactions between competitors as a non-cooperative game, the framework identifies equilibrium pricing strategies that maximize revenue while maintaining market stability. The proposed approach incorporates demand elasticity and market dynamics to adaptively adjust prices, ensuring alignment with consumer behavior and competitive conditions. Simulations conducted in multi-player market scenarios demonstrate the framework’s superiority over traditional pricing methods, achieving significant improvements in revenue, market share stability, and pricing consistency. The results highlight the framework’s potential as a robust tool for modern dynamic pricing, offering businesses a competitive edge in volatile markets.