Bid-price control with origin–destination demand: A stochastic programming approach

A bid–price policy is a revenue management scheme in which the marginal value of an asset (eg, a seat on a plane) is used to determine when arriving customers should be permitted to purchase the asset. In essence, when the price that the customer offers exceeds the bid price, a sale takes place. In this paper, we consider a stochastic programming–based approach to bid–price computations. We develop our model based on uncertain demand between origin–destination (O–D) pairs, and explicitly recognise that multiple routes are available for each O–D pair. A simulation–based demonstration of our approach suggests that our proposed methodology performs well when compared to deterministically based bid price computations.