IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v225y2013i2p324-331.html
   My bibliography  Save this article

Structural properties of Markov modulated revenue management problems

Author

Listed:
  • Özkan, Can
  • Karaesmen, Fikri
  • Özekici, Süleyman

Abstract

The admission decision is one of the fundamental categories of demand-management decisions. In the dynamic model of the single-resource capacity control problem, the distribution of demand does not explicitly depend on external conditions. However, in reality, demand may depend on the current external environment which represents the prevailing economic, financial, social or other factors that affect customer behavior. We formulate a Markov Decision Process (MDP) to maximize expected revenues over a finite horizon that explicitly models the current environment. We derive some structural results of the optimal admission policy, including the existence of an environment-dependent thresholds and a comparison of threshold levels in different environments. We also present some computational results which illustrate these structural properties. Finally, we extend some of the results to a related dynamic pricing formulation.

Suggested Citation

  • Özkan, Can & Karaesmen, Fikri & Özekici, Süleyman, 2013. "Structural properties of Markov modulated revenue management problems," European Journal of Operational Research, Elsevier, vol. 225(2), pages 324-331.
    • Handle: RePEc:eee:ejores:v:225:y:2013:i:2:p:324-331
    DOI: 10.1016/j.ejor.2012.09.020
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221712006844
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2012.09.020?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. S. L. Brumelle & J. I. McGill, 1993. "Airline Seat Allocation with Multiple Nested Fare Classes," Operations Research, INFORMS, vol. 41(1), pages 127-137, February.
    2. Yingjie Lan & Huina Gao & Michael O. Ball & Itir Karaesmen, 2008. "Revenue Management with Limited Demand Information," Management Science, INFORMS, vol. 54(9), pages 1594-1609, September.
    3. Tak C. Lee & Marvin Hersh, 1993. "A Model for Dynamic Airline Seat Inventory Control with Multiple Seat Bookings," Transportation Science, INFORMS, vol. 27(3), pages 252-265, August.
    4. 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.
    5. c{S}. .Ilker Birbil & J. B. G. Frenk & Joaquim A. S. Gromicho & Shuzhong Zhang, 2009. "The Role of Robust Optimization in Single-Leg Airline Revenue Management," Management Science, INFORMS, vol. 55(1), pages 148-163, January.
    6. Jing-Sheng Song & Paul Zipkin, 1993. "Inventory Control in a Fluctuating Demand Environment," Operations Research, INFORMS, vol. 41(2), pages 351-370, April.
    7. Keilson, Julian & Kester, Adri, 1977. "Monotone matrices and monotone Markov processes," Stochastic Processes and their Applications, Elsevier, vol. 5(3), pages 231-241, July.
    8. Eren Çil & E. Örmeci & Fikri Karaesmen, 2007. "Structural results on a batch acceptance problem for capacitated queues," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 66(2), pages 263-274, October.
    9. Shelby Brumelle & Darius Walczak, 2003. "Dynamic Airline Revenue Management with Multiple Semi-Markov Demand," Operations Research, INFORMS, vol. 51(1), pages 137-148, February.
    10. Arifoglu, Kenan & Özekici, Süleyman, 2010. "Optimal policies for inventory systems with finite capacity and partially observed Markov-modulated demand and supply processes," European Journal of Operational Research, Elsevier, vol. 204(3), pages 421-438, August.
    11. Richard Van Slyke & Yi Young, 2000. "Finite Horizon Stochastic Knapsacks with Applications to Yield Management," Operations Research, INFORMS, vol. 48(1), pages 155-172, February.
    12. Wen-Chyuan Chiang & Jason C.H. Chen & Xiaojing Xu, 2007. "An overview of research on revenue management: current issues and future research," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 1(1), pages 97-128.
    13. C. Barz & K. Waldmann, 2007. "Risk-sensitive capacity control in revenue management," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 65(3), pages 565-579, June.
    14. Conrad J. Lautenbacher & Shaler Stidham, 1999. "The Underlying Markov Decision Process in the Single-Leg Airline Yield-Management Problem," Transportation Science, INFORMS, vol. 33(2), pages 136-146, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nasr, Walid W. & Maddah, Bacel, 2015. "Continuous (s, S) policy with MMPP correlated demand," European Journal of Operational Research, Elsevier, vol. 246(3), pages 874-885.
    2. Yonit Barron, 2023. "Integrating Replenishment Policy and Maintenance Services in a Stochastic Inventory System with Bilateral Movements," Mathematics, MDPI, vol. 11(4), pages 1-35, February.
    3. Chun-Hung Chiu & Shui-Hung Hou & Xun Li & Wei Liu, 2017. "Real options approach for fashionable and perishable products using stock loan with regime switching," Annals of Operations Research, Springer, vol. 257(1), pages 357-377, October.
    4. Walid W. Nasr, 2022. "Inventory systems with stochastic and batch demand: computational approaches," Annals of Operations Research, Springer, vol. 309(1), pages 163-187, February.
    5. Chen, Jing & Wang, Jian & Bell, Peter C., 2014. "Lease expiration management for a single lease term in the apartment industry," European Journal of Operational Research, Elsevier, vol. 238(1), pages 233-244.
    6. E. Lerzan Örmeci & Evrim Didem Güneş & Derya Kunduzcu, 2016. "A Modeling Framework for Control of Preventive Services," Manufacturing & Service Operations Management, INFORMS, vol. 18(2), pages 227-244, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. J. B. G. Frenk & Behrooz Pourghannad & Semih O. Sezer, 2017. "A Static Model in Single Leg Flight Airline Revenue Management," Transportation Science, INFORMS, vol. 51(1), pages 214-232, February.
    2. Yingjie Lan & Huina Gao & Michael O. Ball & Itir Karaesmen, 2008. "Revenue Management with Limited Demand Information," Management Science, INFORMS, vol. 54(9), pages 1594-1609, September.
    3. Michael O. Ball & Maurice Queyranne, 2009. "Toward Robust Revenue Management: Competitive Analysis of Online Booking," Operations Research, INFORMS, vol. 57(4), pages 950-963, August.
    4. Syed Asif Raza & Rafi Ashrafi & Ali Akgunduz, 2020. "A bibliometric analysis of revenue management in airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(6), pages 436-465, December.
    5. Ş. İlker Birbil & J. B. G. Frenk & Joaquim A. S. Gromicho & Shuzhong Zhang, 2014. "A Network Airline Revenue Management Framework Based on Decomposition by Origins and Destinations," Transportation Science, INFORMS, vol. 48(3), pages 313-333, August.
    6. Pak, K. & Piersma, N., 2002. "airline revenue management," ERIM Report Series Research in Management ERS-2002-12-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    7. Pak, K. & Piersma, N., 2002. "Airline revenue management: an overview of OR techniques 1982-2001," Econometric Institute Research Papers EI 2002-03, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    8. Kavitha Balaiyan & R. K. Amit & Atul Kumar Malik & Xiaodong Luo & Amit Agarwal, 2019. "Joint forecasting for airline pricing and revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(6), pages 465-482, December.
    9. c{S}. .Ilker Birbil & J. B. G. Frenk & Joaquim A. S. Gromicho & Shuzhong Zhang, 2009. "The Role of Robust Optimization in Single-Leg Airline Revenue Management," Management Science, INFORMS, vol. 55(1), pages 148-163, January.
    10. Shelby Brumelle & Darius Walczak, 2003. "Dynamic Airline Revenue Management with Multiple Semi-Markov Demand," Operations Research, INFORMS, vol. 51(1), pages 137-148, February.
    11. Gönsch, Jochen, 2017. "A survey on risk-averse and robust revenue management," European Journal of Operational Research, Elsevier, vol. 263(2), pages 337-348.
    12. Dawsen Hwang & Patrick Jaillet & Vahideh Manshadi, 2021. "Online Resource Allocation Under Partially Predictable Demand," Operations Research, INFORMS, vol. 69(3), pages 895-915, May.
    13. Koenig, Matthias & Meissner, Joern, 2015. "Value-at-risk optimal policies for revenue management problems," International Journal of Production Economics, Elsevier, vol. 166(C), pages 11-19.
    14. Guillermo Gallego & Michael Z. F. Li & Yan Liu, 2020. "Dynamic Nonlinear Pricing of Inventories over Finite Sales Horizons," Operations Research, INFORMS, vol. 68(3), pages 655-670, May.
    15. Constantinos Maglaras & Joern Meissner, 2006. "Dynamic Pricing Strategies for Multiproduct Revenue Management Problems," Manufacturing & Service Operations Management, INFORMS, vol. 8(2), pages 136-148, July.
    16. Maclean, K.D.S. & Ødegaard, F., 2020. "Dynamic capacity allocation for group bookings in live entertainment," European Journal of Operational Research, Elsevier, vol. 287(3), pages 975-988.
    17. Wang, Weidi & Tang, Ou & Huo, Jiazhen, 2018. "Dynamic capacity allocation for airlines with multi-channel distribution," Journal of Air Transport Management, Elsevier, vol. 69(C), pages 173-181.
    18. Muzaffer Buyruk & Ertan Güner, 2022. "Personalization in airline revenue management: an overview and future outlook," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(2), pages 129-139, April.
    19. Schön, Cornelia, 2010. "Optimal dynamic price selection under attraction choice models," European Journal of Operational Research, Elsevier, vol. 205(3), pages 650-660, September.
    20. Huina Gao & Michael O. Ball & Itir Z. Karaesmen, 2016. "Distribution-free methods for multi-period, single-leg booking control," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 15(6), pages 425-453, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:225:y:2013:i:2:p:324-331. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.