Improved bid prices for choice-based network revenue management
One of the latest developments in network revenue management (RM) is the incorporation of customer purchase behavior via discrete choice models. Many authors presented control policies for the booking process that are expressed in terms of which combination of products to offer at a given point in time and given resource inventories. However, in many implemented RM systems—most notably in the hotel industry—bid price control is being used, and this entails the problem that the recommended combination of products as identified by these policies might not be representable through bid price control. If demand were independent from available product alternatives, an optimal choice of bid prices is to use the marginal value of capacity for each resource in the network. But under dependent demand, this is not necessarily the case. In fact, it seems that these bid prices are typically not restrictive enough and result in buy-down effects.
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MRG/0008, Department of Management Science, Lancaster University, revised Apr 2010.
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