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Incentive mechanism to control customer buy-down behaviour

Author

Listed:
  • V Sri Vanamalla

    (Indian Institute of Science)

  • R Parthasarathy

    (Indian Institute of Science)

Abstract

Airlines have successfully practiced revenue management over the past four decades and enhanced their revenue. Most of the traditional models that are applied assume that customers buying a high-fare class ticket will not purchase a low-fare class ticket even if it is available. This is not a very realistic assumption and has led to revenue leakage due to customers exhibiting buy-down behaviour. This paper aims at devising a suitable incentive mechanism that would incite the customer to reveal his nature. This helps in reducing revenue leakage. We show that the proposed incentive mechanism is profitable to both the buyer and seller and hence ensures the buyers participation in the mechanism.

Suggested Citation

  • V Sri Vanamalla & R Parthasarathy, 2011. "Incentive mechanism to control customer buy-down behaviour," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(8), pages 1566-1573, August.
    • Handle: RePEc:pal:jorsoc:v:62:y:2011:i:8:d:10.1057_jors.2010.57
    DOI: 10.1057/jors.2010.57
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    References listed on IDEAS

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