Advanced Search
MyIDEAS: Login to save this article or follow this journal

Computing Virtual Nesting Controls for Network Revenue Management Under Customer Choice Behavior

Contents:

Author Info

  • Garrett van Ryzin

    ()
    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Gustavo Vulcano

    ()
    (Stern School of Business, New York University, New York, New York 10012)

Registered author(s):

    Abstract

    We consider a revenue management, network capacity control problem in a setting where heterogeneous customers choose among the various products offered by a firm (e.g., different flight times, fare classes, and/or routings). Customers may therefore substitute if their preferred products are not offered. These individual customer choice decisions are modeled as a very general stochastic sequence of customers, each of whom has an ordered list of preferences. Minimal assumptions are made about the statistical properties of this demand sequence. We assume that the firm controls the availability of products using a virtual nesting control strategy and would like to optimize the protection levels for its virtual classes accounting for the (potentially quite complex) choice behavior of its customers. We formulate a continuous demand and capacity approximation for this problem, which allows for the partial acceptance of requests for products. The model admits an efficient calculation of the sample path gradient of the network revenue function. This gradient is then used to construct a stochastic steepest ascent algorithm. We show the algorithm converges in probability to a stationary point of the expected revenue function under mild conditions. The algorithm is relatively efficient even on large network problems, and in our simulation experiments it produces significant revenue increases relative to traditional virtual nesting methods. On a large-scale, real-world airline example using choice behavior models fit to actual booking data, the method produced an estimated 10% improvement in revenue relative to the controls used by the airline. The examples also provide interesting insights into how protection levels should be adjusted to account for choice behavior. Overall, the results indicate that choice behavior has a significant impact on both capacity control decisions and revenue performance and that our method is a viable approach for addressing the problem.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://dx.doi.org/10.1287/msom.1070.0210
    Download Restriction: no

    Bibliographic Info

    Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

    Volume (Year): 10 (2008)
    Issue (Month): 3 (October)
    Pages: 448-467

    as in new window
    Handle: RePEc:inm:ormsom:v:10:y:2008:i:3:p:448-467

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Email:
    Web page: http://www.informs.org/
    More information through EDIRC

    Related research

    Keywords: choice behavior; revenue management; network capacity control; stochastic approximation; stochastic gradients;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Meissner, Joern & Strauss, Arne, 2012. "Improved bid prices for choice-based network revenue management," European Journal of Operational Research, Elsevier, vol. 217(2), pages 417-427.
    2. Meissner, Joern & Strauss, Arne, 2012. "Network revenue management with inventory-sensitive bid prices and customer choice," European Journal of Operational Research, Elsevier, vol. 216(2), pages 459-468.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:10:y:2008:i:3:p:448-467. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.