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Dynamic pricing of airline tickets with competition

Author

Listed:
  • C S M Currie

    (University of Southampton)

  • R C H Cheng

    (University of Southampton)

  • H K Smith

    (University of Southampton)

Abstract

Competition has a huge influence on customer buying behaviour and will impact on the optimal price that companies should charge for goods or services. To date, many dynamic pricing models have not modelled competition explicitly. In this paper, we introduce pricing strategies that maximize revenue when selling an inventory of identical items by a fixed time and where there is a competing seller. The model used incorporates a probabilistic formulation of customer demand, which is influenced by the prices offered by the company and the competitor, and the time remaining until the end of the selling period. Calculus of variations is used to solve the problem and simple conditions are given that ensure the uniqueness of a solution. Illustrative examples are included. A practical implementation that uses dynamic updating is proposed and tested using simulated data, showing the effectiveness of the method.

Suggested Citation

  • C S M Currie & R C H Cheng & H K Smith, 2008. "Dynamic pricing of airline tickets with competition," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(8), pages 1026-1037, August.
    • Handle: RePEc:pal:jorsoc:v:59:y:2008:i:8:d:10.1057_palgrave.jors.2602425
    DOI: 10.1057/palgrave.jors.2602425
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    References listed on IDEAS

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    Cited by:

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    2. Asgari, Nasrin & Farahani, Reza Zanjirani & Goh, Mark, 2013. "Network design approach for hub ports-shipping companies competition and cooperation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 48(C), pages 1-18.
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    6. Torsten J. Gerpott & Jan Berends, 2022. "Competitive pricing on online markets: a literature review," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(6), pages 596-622, December.
    7. Sato, Kimitoshi & Sawaki, Katsushige, 2013. "A continuous-time dynamic pricing model knowing the competitor’s pricing strategy," European Journal of Operational Research, Elsevier, vol. 229(1), pages 223-229.
    8. Rãzvan-Andrei CORBO? & Ruxandra-Irina POPESCU & Ovidiu-Iulian BUNEA, 2017. "Strategic Implications Of Analyzing Competitiveness Measuring Instruments For Romania," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 7(2), pages 13-26, June.
    9. Andrei M. Bandalouski & Natalja G. Egorova & Mikhail Y. Kovalyov & Erwin Pesch & S. Armagan Tarim, 2021. "Dynamic pricing with demand disaggregation for hotel revenue management," Journal of Heuristics, Springer, vol. 27(5), pages 869-885, October.

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