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Mathematical programming models for revenue management under customer choice

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  • Chen, Lijian
  • Homem-de-Mello, Tito

Abstract

We study a network airline revenue management problem with discrete customer choice behavior. We discuss a choice model based on the concept of preference orders, in which customers can be grouped according to a list of options in decreasing order of preference. If a customer's preferred option is not available, the customer moves to the next choice on the list with some probability. If that option is not available, the customer moves to the third choice on the list with some probability, and so forth until either the customer has no other choice but to leave or his/her request is accepted. Using this choice model as an input, we propose some mathematical programs to determine seat allocations. We also propose a post-optimization heuristic to refine the allocation suggested by the optimization model. Simulation results are presented to illustrate the effectiveness of our method, including comparisons with other models.

Suggested Citation

  • Chen, Lijian & Homem-de-Mello, Tito, 2010. "Mathematical programming models for revenue management under customer choice," European Journal of Operational Research, Elsevier, vol. 203(2), pages 294-305, June.
  • Handle: RePEc:eee:ejores:v:203:y:2010:i:2:p:294-305
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    References listed on IDEAS

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    1. Bodily, S. E. & Weatherford, L. R., 1995. "Perishable-asset revenue management: Generic and multiple-price yield management with diversion," Omega, Elsevier, vol. 23(2), pages 173-185, April.
    2. de Boer, Sanne V. & Freling, Richard & Piersma, Nanda, 2002. "Mathematical programming for network revenue management revisited," European Journal of Operational Research, Elsevier, vol. 137(1), pages 72-92, February.
    3. 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.
    4. William L. Cooper & Diwakar Gupta, 2006. "Stochastic Comparisons in Airline Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 8(3), pages 221-234, February.
    5. 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.
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    Cited by:

    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. 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.
    3. Ƙdegaard, Fredrik & Wilson, John G., 2016. "Dynamic pricing of primary products and ancillary services," European Journal of Operational Research, Elsevier, vol. 251(2), pages 586-599.

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