A continuous-time yield management model with multiple prices and reversible price changes

A continuous-time yield management model with multiple prices and reversible price changes

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Article ID: iaor20011641
Country: United States
Volume: 46
Issue: 5
Start Page Number: 644
End Page Number: 657
Publication Date: May 2000
Journal: Management Science
Authors: ,
Keywords: demand, stochastic processes, yield management
Abstract:

This article studies a continuous-time yield management model in which reversible price changes are allowed. We assume that perishable assets are offered at a set of discrete price levels. Demand at each level is a Poisson process. To maximize the expected revenue, management controls the price dynamically as sales evolve. We show that a subset of these prices that form a concave envelope is potentially optimal. We formulate the problem into an intensity control model and derive the optimal solution in closed form. Properties of the optimal solution and their policy implementations are discussed. Numerical examples are provided.

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