Instrumenting While Experimenting: An Empirical Method for Competitive Pricing at Scale

Injecting Little Variations to Create Large Gains: Rethinking Online Retail Pricing In today’s fast-changing markets, businesses rely on precise, timely causal insights to guide effective operational decisions. In a new study, “Instrumenting While Experimenting: An Empirical Method for Competitive Pricing at Scale,” the authors introduce an idea of “instrumenting while experimenting.” By introducing small, random variations into routine decision-making processes, they generate causal insights on the impact of business decisions across different competitive dynamics, enabling large-scale operational improvements without disrupting daily business operations. Partnering with a major U.S. e-commerce retailer, the researchers apply this approach to develop a competitive pricing method that enhances response accuracy to competitors’ price changes at scale. Implemented on over 10,000 products, the method delivers significant gains—boosting revenue by more than 15% and profit by over 10%. These gains stem from the successful implementation of the instrumenting while experimenting idea as well as the joint use of experimentation, causal inference, and optimization tools. Moreover, this framework and its implementation provide deeper substantive insights into competitive response strategies and offer a promising blueprint for businesses navigating dynamic online markets.