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A new compact linear programming formulation for choice network revenue management

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  • Sumit Kunnumkal
  • Kalyan Talluri

Abstract

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 dyamic 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.

Suggested Citation

  • Sumit Kunnumkal & Kalyan Talluri, 2012. "A new compact linear programming formulation for choice network revenue management," Economics Working Papers 1349, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1349
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
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    5. Dan Zhang & Daniel Adelman, 2009. "An Approximate Dynamic Programming Approach to Network Revenue Management with Customer Choice," Transportation Science, INFORMS, vol. 43(3), pages 381-394, August.
    6. Kalyan Talluri, 2010. "A randomized concave programming method for choice network revenue management," Economics Working Papers 1215, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2011.
    7. 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.
    8. Arne Strauss & Kalyan Talluri, 2012. "A Tractable Consideration Set Structure for Network Revenue Management," Working Papers 606, Barcelona School of Economics.
    9. 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.
    10. 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.
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    Cited by:

    1. Sumit Kunnumkal & Kalyan Talluri, 2014. "On the Tractability of the Piecewiselinear Approximation for General Discrete-Choice Network Revenue Management," Working Papers 749, Barcelona School of Economics.
    2. Sumit Kunnumkal & Kalyan Talluri, 2016. "On a Piecewise-Linear Approximation for Network Revenue Management," Mathematics of Operations Research, INFORMS, vol. 41(1), pages 72-91, February.
    3. Sumit Kunnumkal & Kalyan Talluri, 2019. "A strong Lagrangian relaxation for general discrete-choice network revenue management," Computational Optimization and Applications, Springer, vol. 73(1), pages 275-310, May.
    4. Jacob B. Feldman & Huseyin Topaloglu, 2017. "Revenue Management Under the Markov Chain Choice Model," Operations Research, INFORMS, vol. 65(5), pages 1322-1342, October.
    5. Sumit Kunnumkal & Kalyan Talluri, 2014. "On the tractability of the piecewise-linear approximation for general discrete-choice network revenue management," Economics Working Papers 1409, Department of Economics and Business, Universitat Pompeu Fabra.

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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