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Cargo Revenue Management: Bid-Prices for a 0-1 Multi Knapsack Problem

  • Pak, K.
  • Dekker, R.

Revenue management is the practice of selecting those customers that generate the maximum revenue from a fixed and perishable capacity. Cargo revenue management differs from the well-known passenger revenue management problem by the fact that its capacity constraint is 2-dimensional, i.e. weight and volume, and that the weight, volume and profit of each booking request are random and continuous variables. This leads to a multi-dimensional on-line knapsack problem. We show that a bid-price acceptance policy is asymptotically optimal if demand and capacity increase proportionally and the bid-prices are set correctly. We provide a heuristic to set the bid-prices based on a greedy algorithm for the multi-knapsack problem proposed by Rinnooy Kan et al. (1993). A test case shows that these bid-prices perform better than the traditional LP-based bid-prices that do not perform well at all for this problem.

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File URL: http://repub.eur.nl/pub/1449/ERS%202004%20055%20LIS.pdf
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Paper provided by 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 in its series ERIM Report Series Research in Management with number ERS-2004-055-LIS.

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Date of creation: 06 Aug 2004
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Handle: RePEc:ems:eureri:1449
Contact details of provider: Postal: RSM Erasmus University & Erasmus School of Economics, PoBox 1738, 3000 DR Rotterdam
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  1. Kalyan Talluri & Garrett van Ryzin, 1998. "An Analysis of Bid-Price Controls for Network Revenue Management," Management Science, INFORMS, vol. 44(11-Part-1), pages 1577-1593, November.
  2. Jason D. Papastavrou & Srikanth Rajagopalan & Anton J. Kleywegt, 1996. "The Dynamic and Stochastic Knapsack Problem with Deadlines," Management Science, INFORMS, vol. 42(12), pages 1706-1718, December.
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