A Multiproduct Dynamic Pricing Problem and Its Applications to Network Yield Management

@article{Gallego_vanRyzin_1997, abstract = {A firm has inventories of a set of components that are used to produce a set of products. There is a finite horizon over which the firm can sell its products. Demand for each product is a stochastic point process with an intensity that is a function of the vector of prices for the products and the time at which these prices are offered. The problem is to price the finished products so as to maximize total expected revenue over the finite sales horizon. An upper bound on the optimal expected revenue is established by analyzing a deterministic version of the problem. The solution to the deterministic problem suggests two heuristics for the stochastic problem that are shown to be asymptotically optimal as the expected sales volume tends to infinity. Several applications of the model to network yield management are given. Numerical examples illustrate both the range of problems that can be modeled under this framework and the effectiveness of the proposed heuristics. The results provide several fundamental insights into the performance of yield management systems.}, author = {Gallego, Guillermo and van Ryzin, Garrett }, citeulike-article-id = {2730111}, journal = {Operations Research}, keywords = {multi\_leg, multi\_product, pricing, revenue\_management}, number = {1}, pages = {24--41}, posted-at = {2008-04-28 15:19:29}, priority = {2}, publisher = {INFORMS}, title = {A Multiproduct Dynamic Pricing Problem and Its Applications to Network Yield Management}, url = {http://www.jstor.org/stable/171923}, volume = {45}, year = {1997} }

TY - JOUR ID - Gallego_vanRyzin_1997 L3 - citeulike-article-id:2730111 TI - A Multiproduct Dynamic Pricing Problem and Its Applications to Network Yield Management JF - Operations Research VL - 45 IS - 1 SP - 24 EP - 41 PB - INFORMS N2 - A firm has inventories of a set of components that are used to produce a set of products. There is a finite horizon over which the firm can sell its products. Demand for each product is a stochastic point process with an intensity that is a function of the vector of prices for the products and the time at which these prices are offered. The problem is to price the finished products so as to maximize total expected revenue over the finite sales horizon. An upper bound on the optimal expected revenue is established by analyzing a deterministic version of the problem. The solution to the deterministic problem suggests two heuristics for the stochastic problem that are shown to be asymptotically optimal as the expected sales volume tends to infinity. Several applications of the model to network yield management are given. Numerical examples illustrate both the range of problems that can be modeled under this framework and the effectiveness of the proposed heuristics. The results provide several fundamental insights into the performance of yield management systems. KW - multi_leg KW - multi_product KW - pricing KW - revenue_management AU - Gallego, Guillermo AU - van Ryzin, Garrett PY - 1997/// UR - http://www.jstor.org/stable/171923 ER -