Pricing non-storable perishable goods by using a purchase restriction with an application to airline fare pricing

The aim of this paper is to address the pricing problem of non-storable perishable goods or services, such as airline seats and hotel rooms, by incorporating the use of purchase restrictions, such as the advance booking requirement that is commonly used by airlines and hotels. We will show that there exists an optimal pricing policy of at most three prices, which can be obtained by solving a series of linear programming problems. We will demonstrate that when applied to airline fare pricing, the monotonicity condition of the model is equivalent to the requirement that business travelers are less price-elastic then leisure travelers. We will further illustrate the applicability of the model through a numerical example in the context of airline fare pricing by incorporating the impact of various ‘fences’.