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Comment on Modified Fare Ratio in a Two-Class Static Revenue Management Model with Buy-up Behavior

Author

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  • Hideaki Takagi

    (University of Tsukuba, Tsukuba, Ibaraki 305-8577, Japan)

Abstract

We review the optimal booking limit in the two-class static revenue management model with customers’ buy-up behavior. This is when a deterministic fraction of the low-fare customer class that cannot book early are willing to book the higher fare later. This simple model with dependent demands is difficult to analyze. Some well-known publications, such as Talluri and van Ryzin ( 2004 ) and Phillips ( 2005 ), treat this model incorrectly. In this note, we correct an erroneous formula for the modified fare ratio with the proper probabilistic interpretation. The correction was established previously by Brumelle et al. ( 1990 ). Numerical examples reveal that the corrected modified fare ratio provides a lower optimal booking limit, resulting in a higher expected revenue than those obtained by using the incorrect modified fare ratio.

Suggested Citation

  • Hideaki Takagi, 2021. "Comment on Modified Fare Ratio in a Two-Class Static Revenue Management Model with Buy-up Behavior," Transportation Science, INFORMS, vol. 55(6), pages 1228-1231, November.
    • Handle: RePEc:inm:ortrsc:v:55:y:2021:i:6:p:1228-1231
    DOI: 10.1287/trsc.2021.1082
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