Relationships among three assumptions in revenue management

Relationships among three assumptions in revenue management

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Article ID: iaor20073681
Country: United States
Volume: 52
Issue: 5
Start Page Number: 804
End Page Number: 809
Publication Date: Sep 2004
Journal: Operations Research
Authors: , ,
Keywords: marketing
Abstract:

This note discusses the relationships among three assumptions that appear frequently in the pricing/revenue management literature. These assumptions are mostly needed for analytical tractability, and they have the common property of ensuring a well-behaved ‘revenue function’. The three assumptions are decreasing marginal revenue with respect to demand, decreasing marginal revenue with respect to price, and increasing price elasticity of demand. We provide proofs and examples to show that none of these conditions implies any other. However, they can be ordered from strongest to weakest over restricted regions, and the ordering depends upon the region.

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