Network Revenue Management with Inventory-Sensitive Bid Prices and Customer Choice
We develop a new approximate dynamic programming approach to network revenue management models with customer choice that approximates the value function of the Markov decision process with a concave function which is separable across resource inventory levels. This approach reflects the intuitive interpretation of diminishing marginal utility of inventory levels and allows for significantly improved accuracy compared to currently available methods. The model allows for arbitrary aggregation of inventory units and thereby reduction of computational workload, yields upper bounds on the optimal expected revenue that are provably at least as tight as those obtained from previous approaches, and is asymptotically optimal under fluid scaling. Computational experiments for the multinomial logit choice model with distinct consideration sets show that policies derived from our approach outperform available alternatives, and we demonstrate how aggregation can be used to balance solution quality and runtime.
|Date of creation:||Jul 2008|
|Date of revision:||Apr 2010|
|Contact details of provider:|| Web page: http://www.lums.lancs.ac.uk/departments/ManSci/|
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- 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.
- Joern Meissner & Arne Strauss & Kalyan Talluri, 2011. "An Enhanced Concave Program Relaxation for Choice Network Revenue Management," Working Papers 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.
- 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, 2009. "Choice-Based Network Revenue Management under Weak Market Segmentation," Working Papers MRG/0012, Department of Management Science, Lancaster University, revised May 2010.
- Garrett van Ryzin & Gustavo Vulcano, 2008. "Computing Virtual Nesting Controls for Network Revenue Management Under Customer Choice Behavior," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 448-467, October.
- Chen, Lijian & Homem-de-Mello, Tito, 2010. "Mathematical programming models for revenue management under customer choice," European Journal of Operational Research, Elsevier, vol. 203(2), pages 294-305, June.
- Zhang, Dan & Cooper, William L., 2009. "Pricing substitutable flights in airline revenue management," European Journal of Operational Research, Elsevier, vol. 197(3), pages 848-861, September.
- Wen-Chyuan Chiang & Jason C.H. Chen & Xiaojing Xu, 2007. "An overview of research on revenue management: current issues and future research," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 1(1), pages 97-128.
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