Revenue management: A real options approach

Revenue management: A real options approach

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Article ID: iaor20052620
Country: United States
Volume: 51
Issue: 5
Start Page Number: 686
End Page Number: 703
Publication Date: Aug 2004
Journal: Naval Research Logistics
Authors: , ,
Keywords: financial, transportation: air, yield management
Abstract:

Revenue management is the process of actively managing inventory or capacity to maximize revenues. The active management typically occurs through managerial levers such as price, promotion, or availability. We present a novel real options approach to revenue management that is specifically suited to the car rental business. We illustrate the concept with actual car rental data. The model produces minimally acceptable prices and inventory release quantities (number of cars available for rent at a given price) as a function of remaining time and available inventory. The pricing and inventory release recommendations of the developed model confirm earlier empirical analysis that suggested current practices discount too deeply early in the booking cycle.

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