Abstract
This paper proposes and analyses a pricing-based revenue management model that allows flexible products on a network, with a non-trivial extension to group reservations. Under stochastic demand the problem can be solved using dynamic programming, though it suffers from the curse of dimensionality. The solution under deterministic demand gives an upper bound on the stochastic problem, and serves as a basis for two heuristics, which are asymptotically optimal. Numerical studies, based on a problem instance from practice, show that the heuristics perform well, even under uncertainty in demand. Moreover, neglecting flexible products can lead to substantial revenue loss.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Bitran, G. and Caldentey, R. (2003) An overview of pricing models for revenue management. Manufacturing & Service Operations Management 5(3): 203–229.
Fay, S. and Xie, J. (2008) Probabilistic goods: A creative way of selling products and services. Marketing Science 27(4): 674–690.
Gallego, G., Iyengar, G., Phillips, R. and Dubey, A. (2004) Managing flexible products on a network. CORC Technical Report TR-2004-01 .
Gallego, G. and Phillips, R. (2004) Revenue management of flexible products. Manufacturing & Service Operations Management 6(4): 321–337.
Gallego, G. and Van Ryzin, G. (1997) A multiproduct dynamic pricing problem and its applications to network yield management. Operations Research 45(1): 24–41.
Gönsch, J., Koch, S. and Steinhardt, C. (2014) Revenue management with flexible products: The value of flexibility and its incorporation into dlp-based approaches. International Journal of Production Economics 153: 280–294.
Maglaras, C. and Meissner, J. (2006) Dynamic pricing strategies for multiproduct revenue management problems. Manufacturing & Service Operations Management 8(2): 136–148.
Mang, S., Post, D. and Spann, M. (2012) Pricing of flexible products. Review of Managerial Science 6(4): 361–374.
McKinsey&Company. (2015) Global media report 2015: Global industry overview. Tech. rep.
Petrick, A., Gönsch, J. Steinhardt, C. and Klein, R. (2010) Dynamic control mechanisms for revenue management with flexible products. Computers & Operations Research 37(11): 2027–2039.
Petrick, A., Steinhardt, C., Gönsch, J. and Klein, R. (2012) Using flexible products to cope with demand uncertainty in revenue management. OR spectrum 34(1): 215–242.
Soon, W. (2011) A review of multi-product pricing models. Applied mathematics and computation 217(21): 8149–8165.
Zhang, D., and Lu, Z. (2013) Assessing the value of dynamic pricing in network revenue management. INFORMS Journal on Computing 25(1): 102–115.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Sierag, D. Pricing-based revenue management for flexible products on a network. J Revenue Pricing Manag 16, 325–339 (2017). https://doi.org/10.1057/s41272-016-0061-1
Revised:
Published:
Issue Date:
DOI: https://doi.org/10.1057/s41272-016-0061-1