A New Compact Linear Programming Formulation for Choice Network Revenue Management
The choice network revenue management model incorporates customer purchase behavior as a function of the offered products, and is the appropriate model for airline and hotel network revenue management, dynamic sales of bundles, and dynamic assortment optimization. The optimization problem is a stochastic dynamic program and is intractable. A certainty equivalence relaxation of the dynamic program, called the choice deterministic linear program (CDLP) is usually used to generate dynamic controls. Recently, a compact linear programming formulation of this linear program was given for the multi-segment multinomial-logit (MNL) model of customer choice with non-overlapping consideration sets. Our objective is to obtain a tighter bound than this formulation while retaining the appealing properties of a compact linear programming representation. To this end, it is natural to consider the affine relaxation of the dynamic program. We first show that the affine relaxation is NP-complete even for a single-segment MNL model. Nevertheless, by analyzing the affine relaxation we derive a new compact linear program that approximates the dynamic programming value function better than CDLP, provably between the CDLP value and the affine relaxation, and often coming close to the latter in our numerical experiments. When the segment consideration sets overlap, we show that some strong equalities called product cuts developed for the CDLP remain valid for our new formulation. Finally we perform extensive numerical comparisons on the various bounds to evaluate their performance.
|Date of creation:||Dec 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ramon Trias Fargas, 25-27, 08005 Barcelona|
Phone: +34 93 542-1222
Fax: +34 93 542-1223
Web page: http://www.barcelonagse.eu
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Joern Meissner & Arne Strauss & Kalyan Talluri, 2011.
"An Enhanced Concave Program Relaxation for Choice Network Revenue Management,"
MRG/0020, Department of Management Science, Lancaster University, revised Jan 2011.
- Joern Meissner & Arne Strauss & Kalyan Talluri, 2011. "An Enhanced Concave Program Relaxation for Choice Network Revenue Management," Working Papers 534, Barcelona Graduate School of Economics.
- Joern Meissner & Arne Strauss & Kalyan Talluri, 2011. "An enhanced concave program relaxation for choice network revenue management," Economics Working Papers 1259, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2011.
- Qian Liu & Garrett van Ryzin, 2008. "On the Choice-Based Linear Programming Model for Network Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 288-310, October.
- Arne Strauss & Kalyan Talluri, 2012. "A tractable consideration set structure for network revenue management," Economics Working Papers 1303, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2012.
- Joern Meissner & Arne Strauss, 2008.
"Network Revenue Management with Inventory-Sensitive Bid Prices and Customer Choice,"
MRG/0008, Department of Management Science, Lancaster University, revised Apr 2010.
- Meissner, Joern & Strauss, Arne, 2012. "Network revenue management with inventory-sensitive bid prices and customer choice," European Journal of Operational Research, Elsevier, vol. 216(2), pages 459-468.
- Peeters, M.J.P., 2003. "The maximum edge biclique problem is NP-complete," Other publications TiSEM 3e340431-37b3-4bc5-9b14-9, Tilburg University, School of Economics and Management.
- Tudor Bodea & Mark Ferguson & Laurie Garrow, 2009. "Data Set--Choice-Based Revenue Management: Data from a Major Hotel Chain," Manufacturing & Service Operations Management, INFORMS, vol. 11(2), pages 356-361, December.
- Arne Strauss & Kalyan Talluri, 2012. "A Tractable Consideration Set Structure for Network Revenue Management," Working Papers 606, Barcelona Graduate School of Economics.
When requesting a correction, please mention this item's handle: RePEc:bge:wpaper:677. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruno Guallar)
If references are entirely missing, you can add them using this form.