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Dynamic Pricing Strategies for Multiproduct Revenue Management Problems

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Author Info

  • Constantinos Maglaras

    ()
    (Columbia Business School, Columbia University, 409 Uris Hall, 3022 Broadway, New York, New York 10027)

  • Joern Meissner

    ()
    (Lancaster University Management School, Lancaster University, Room A48, Lancaster LA1 4XY, United Kingdom)

Abstract

Consider a firm that owns a fixed capacity of a resource that is consumed in the production or delivery of multiple products. The firm strives to maximize its total expected revenues over a finite horizon, either by choosing a dynamic pricing strategy for each product or, if prices are fixed, by selecting a dynamic rule that controls the allocation of capacity to requests for the different products. This paper shows how these well-studied revenue management problems can be reduced to a common formulation in which the firm controls the aggregate rate at which all products jointly consume resource capacity, highlighting their common structure, and in some cases leading to algorithmic simplifications through the reduction in the control dimension of the associated optimization problems. In the context of their associated deterministic (fluid) formulations, this reduction leads to a closed-form characterization of the optimal controls, and suggests several natural static and dynamic pricing heuristics. These are analyzed asymptotically and through an extensive numerical study. In the context of the former, we show that "resolving" the fluid heuristic achieves asymptotically optimal performance under fluid scaling.

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File URL: http://dx.doi.org/10.1287/msom.1060.0105
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Bibliographic Info

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

Volume (Year): 8 (2006)
Issue (Month): 2 (July)
Pages: 136-148

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Handle: RePEc:inm:ormsom:v:8:y:2006:i:2:p:136-148

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Keywords: revenue management; dynamic pricing; capacity controls; fluid approximations; efficient frontier;

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References

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  1. Kalyan Talluri & Garrett van Ryzin, 2004. "Revenue Management Under a General Discrete Choice Model of Consumer Behavior," Management Science, INFORMS, vol. 50(1), pages 15-33, January.
  2. Youyi Feng & Baichun Xiao, 2000. "A Continuous-Time Yield Management Model with Multiple Prices and Reversible Price Changes," Management Science, INFORMS, vol. 46(5), pages 644-657, May.
  3. Wedad Elmaghraby & P{\i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, vol. 49(10), pages 1287-1309, October.
  4. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
  5. Gabriel Bitran & René Caldentey, 2003. "An Overview of Pricing Models for Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 203-229, August.
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Citations

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Cited by:
  1. Kuo, Chia-Wei & Huang, Kwei-Long, 2012. "Dynamic pricing of limited inventories for multi-generation products," European Journal of Operational Research, Elsevier, vol. 217(2), pages 394-403.
  2. Weaver, Robert D. & Moon, Yongma, 2011. "Pricing Perishables," 2011 International European Forum, February 14-18, 2011, Innsbruck-Igls, Austria 122007, International European Forum on Innovation and System Dynamics in Food Networks.
  3. Grigoriev Alexander & Hiller Benjamin & Marbán Sebastián & Vredeveld Tjark & Zwaan Ruben van der, 2010. "Dynamic Pricing Problems with Elastic Demand," Research Memorandum 053, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Sumit Kunnumkal & Kalyan Talluri, 2014. "On the Tractability of the Piecewiselinear Approximation for General Discrete-Choice Network Revenue Management," Working Papers 749, Barcelona Graduate School of Economics.
  5. Berk, Emre & Gürler, Ülkü & YIldIrIm, Gonca, 2009. "On pricing of perishable assets with menu costs," International Journal of Production Economics, Elsevier, vol. 121(2), pages 678-699, October.
  6. Burkart, Wolfgang R. & Klein, Robert & Mayer, Stefan, 2012. "Product line pricing for services with capacity constraints and dynamic substitution," European Journal of Operational Research, Elsevier, vol. 219(2), pages 347-359.
  7. Sumit Kunnumkal & Kalyan Talluri, 2014. "On the tractability of the piecewise-linear approximation for general discrete-choice network revenue management," Economics Working Papers 1409, Department of Economics and Business, Universitat Pompeu Fabra.

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