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Using Dynamic Programming Decomposition for Revenue Management with Opaque Products

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  • Jochen Goensch

    ()
    (University of Augsburg)

  • Claudius Steinhardt

    ()
    (University of Augsburg)

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    Abstract

    Opaque products enable service providers to hide specific characteristics of their service fulfillment from the customer until after purchase. Prominent examples include internet-based service providers selling airline tickets without defining details, such as departure time or operating airline, until the booking has been made. Owing to the resulting flexibility in resource utilization, the traditional revenue management process needs to be modified. In this paper, we extend dynamic programming decomposition techniques widely used for traditional revenue management to develop an intuitive capacity control approach that allows for the incorporation of opaque products. In a simulation study, we show that the developed approach significantly outperforms other well-known capacity control approaches adapted to the opaque product setting. Based on the approach, we also provide computational examples of how the share of opaque products as well as the degree of opacity can influence the results.

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    Bibliographic Info

    Article provided by German Academic Association for Business Research in its journal BuR - Business Research.

    Volume (Year): 6 (2013)
    Issue (Month): 1 (May)
    Pages: 94-115

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    Handle: RePEc:vhb:journl:v:6:y:2013:i:1:p:94-115

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    Related research

    Keywords: capacity control; dynamic programming decomposition; opaque products; revenue management;

    References

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    1. 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.
    2. Scott Fay & Jinhong Xie, 2008. "Probabilistic Goods: A Creative Way of Selling Products and Services," Marketing Science, INFORMS, vol. 27(4), pages 674-690, 07-08.
    3. Dmitry Shapiro & Xianwen Shi, 2008. "Market Segmentation: The Role of Opaque Travel Agencies," Working Papers tecipa-310, University of Toronto, Department of Economics.
    4. Qian Liu & Garrett van Ryzin, 2008. "On the Choice-Based Linear Programming Model for Network Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 288-310, October.
    5. Guillermo Gallego & Robert Phillips, 2004. "Revenue Management of Flexible Products," Manufacturing & Service Operations Management, INFORMS, vol. 6(4), pages 321-337, January.
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    Cited by:
    1. Gönsch, Jochen & Koch, Sebastian & Steinhardt, Claudius, 2014. "Revenue management with flexible products: The value of flexibility and its incorporation into DLP-based approaches," International Journal of Production Economics, Elsevier, vol. 153(C), pages 280-294.

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