Learning to bid and bundle: a posterior-sampling agent for online retail

Hadi Mohammadi

An online retailer launching a perishable product bids for sponsored-search clicks, discounts a bundle with an always-stocked staple and displays its remaining stock, which raises willingness to pay. It knows neither how clicks respond to its bid nor how strong and dispersed its market is, and learns both over repeated seasons from data its own decisions censor: a zero bid reveals nothing about paid clicks, and choices follow only clicks. We design a posterior-sampling agent for it. Each period it draws a market from an exact posterior and posts the bid and discount of that market's exactly solved season plan, so every action is one a fully informed seller could take. In a simulated online florist it has the lowest regret averaged over markets. In weak markets it gives up 12% to 23% of one season's revenue over 500 seasons, four to seven times less than drawing once per season. A planner acting on point estimates can stop bidding and never learn that bidding pays. The agent escapes after about three seasons on average, against fifty with one draw per season. Where displayed scarcity keeps willingness to pay above the posted price, the discount needs no learning. Customers waiting…