Paper #533

Título:

Revenue management under general discrete choice model of consumer behavior

Autores:

Kalyan Talluri y Garrett van Ryzin

Fecha:

Septiembre 2000

Resumen:

Customer choice behavior, such as 'buy-up' and 'buy-down', is an important phe-nomenon in a wide range of industries. Yet there are few models or methodologies available to exploit this phenomenon within yield management systems. We make some progress on filling this void. Specifically, we develop a model of yield management in which the buyers' behavior is modeled explicitly using a multi-nomial logit model of demand. The control problem is to decide which subset of fare classes to offer at each point in time. The set of open fare classes then affects the purchase probabilities for each class. We formulate a dynamic program to determine the optimal control policy and show that it reduces to a dynamic nested allocation policy. Thus, the optimal choice-based policy can easily be implemented in reservation systems that use nested allocation controls. We also develop an estimation procedure for our model based on the expectation-maximization (EM) method that jointly estimates arrival rates and choice model parameters when no-purchase outcomes are unobservable. Numerical results show that this combined optimization -estimation approach may significantly improve revenue performance relative to traditional leg-based models that do not account for choice behavior.

Palabras clave:

yield management, revenue management, discrete choice theory, airlines, dynamic programming

Códigos JEL:

C13, C14

Área de investigación:

Gestión de la Producción y de las Operaciones

Publicado en:

Management Science, 50(1):15-33, 2004a

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