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Revenue management approach to stochastic capacity allocation problem

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  • Modarres, Mohammad
  • Sharifyazdi, Mehdi
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    Abstract

    To formulate stochastic capacity allocation problems in a manufacturing system, the concept and techniques of revenue management is applied in this research. It is assumed the production capacity is stochastic and hence its exact size cannot be forecasted in advance, at the time of planning. There are two classes of "frequent" and "occasional" customers demanding this capacity. The price rate as well as the penalty for order cancellation caused by overbooking is different for each class. The model is developed mathematically and we propose an analytical solution method. The properties of the optimal solution as well as the behavior of objective function are also analyzed. The objective function is not concave, in general. However, we prove it is a unimodal function and by taking advantage of this property, the optimal solution is determined.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 192 (2009)
    Issue (Month): 2 (January)
    Pages: 442-459

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    Handle: RePEc:eee:ejores:v:192:y:2009:i:2:p:442-459

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Revenue management Capacity allocation Stochastic capacity Optimization;

    References

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    Cited by:
    1. Zhao, Li & Tian, Peng & Xiangyong Li, 2012. "Dynamic pricing in the presence of consumer inertia," Omega, Elsevier, vol. 40(2), pages 137-148, April.

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