Optimal booking limits in the presence of strategic consumer behavior

Optimal booking limits in the presence of strategic consumer behavior

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Article ID: iaor20073007
Country: United Kingdom
Volume: 13
Issue: 2
Start Page Number: 99
End Page Number: 110
Publication Date: Mar 2006
Journal: International Transactions in Operational Research
Authors: , ,
Keywords: behaviour, yield management
Abstract:

We consider a two-period airline yield management problem where customers may act strategically. Specifically, we allow for the possibility that a customer may decide to defer purchase in the hope that a ticket cheaper than those currently on offer will become available. We also allow for the possibility that some customers will buy a more expensive ticket if the cheaper tickets are not available. We show how to find optimal booking limits in the presence of such strategic customer behavior. We also explicitly incorporate the fact that, once a booking limit has been reached, demand distributions are now censored distributions.

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