Journal of the Operational Research Society

, Volume 59, Issue 8, pp 1026–1037

Dynamic pricing of airline tickets with competition

  • C S M Currie
  • R C H Cheng
  • H K Smith
Case-Oriented Paper

DOI: 10.1057/palgrave.jors.2602425

Cite this article as:
Currie, C., Cheng, R. & Smith, H. J Oper Res Soc (2008) 59: 1026. doi:10.1057/palgrave.jors.2602425

Abstract

Competition has a huge influence on customer buying behaviour and will impact on the optimal price that companies should charge for goods or services. To date, many dynamic pricing models have not modelled competition explicitly. In this paper, we introduce pricing strategies that maximize revenue when selling an inventory of identical items by a fixed time and where there is a competing seller. The model used incorporates a probabilistic formulation of customer demand, which is influenced by the prices offered by the company and the competitor, and the time remaining until the end of the selling period. Calculus of variations is used to solve the problem and simple conditions are given that ensure the uniqueness of a solution. Illustrative examples are included. A practical implementation that uses dynamic updating is proposed and tested using simulated data, showing the effectiveness of the method.

Keywords

yield management revenue management competition dynamic pricing air transport 

Copyright information

© Palgrave Macmillan Ltd 2007

Authors and Affiliations

  • C S M Currie
    • 1
  • R C H Cheng
    • 1
  • H K Smith
    • 1
  1. 1.University of SouthamptonSouthamptonUK

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