Revenue Maximization and Learning in Products Ranking

Department of Decision Sciences and Managerial Economics

We consider the revenue maximization problem for an online retailer who plans to display a set of products differing in their prices and qualities and rank them in order. The consumers have random attention spans and view the products sequentially before purchasing a “satisficing” product or leaving the platform empty-handed when the attention span gets exhausted. Our framework extends the cascade model in two directions: the consumers have random attention spans instead of fixed ones and the firm maximizes revenues instead of clicking probabilities. We show a nested structure of the optimal product ranking as a function of the attention span when the attention span is fixed and design a 1/𝑒-approximation algorithm accordingly for the random attention spans. When the conditional purchase probabilities are not known and may depend on consumer and product features, we devise an online learning algorithm that achieves O(√𝑇) regret relative to the approximation algorithm, despite of the censoring of information: the attention span of a customer who purchases an item is not observable. Numerical experiments demonstrate the outstanding performance of the approximation and online learning algorithms.