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A stochastic approximation method for the single-leg revenue management problem with discrete demand distributions

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  • Sumit Kunnumkal
  • Huseyin Topaloglu

Abstract

We consider the problem of optimally allocating the seats on a single flight leg to the demands from multiple fare classes that arrive sequentially. It is well-known that the optimal policy for this problem is characterized by a set of protection levels. In this paper, we develop a new stochastic approximation method to compute the optimal protection levels under the assumption that the demand distributions are not known and we only have access to the samples from the demand distributions. The novel aspect of our method is that it works with the nonsmooth version of the problem where the capacity can only be allocated in integer quantities. We show that the sequence of protection levels generated by our method converges to a set of optimal protection levels with probability one. We discuss applications to the case where the demand information is censored by the seat availability. Computational experiments indicate that our method is especially advantageous when the total expected demand exceeds the capacity by a significant margin and we do not have good a priori estimates of the optimal protection levels. Copyright Springer-Verlag 2009

Suggested Citation

  • Sumit Kunnumkal & Huseyin Topaloglu, 2009. "A stochastic approximation method for the single-leg revenue management problem with discrete demand distributions," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 70(3), pages 477-504, December.
    • Handle: RePEc:spr:mathme:v:70:y:2009:i:3:p:477-504
    DOI: 10.1007/s00186-008-0278-x
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    References listed on IDEAS

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    6. Nurşen Aydın & Ş. İlker Birbil & J. B. G. Frenk & Nilay Noyan, 2013. "Single-Leg Airline Revenue Management with Overbooking," Transportation Science, INFORMS, vol. 47(4), pages 560-583, November.

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