Revenue management with partially refundable fares

Revenue management with partially refundable fares

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Article ID: iaor20105583
Volume: 58
Issue: 4-Part-1
Start Page Number: 817
End Page Number: 833
Publication Date: Jul 2010
Journal: Operations Research
Authors: ,
Abstract:

We introduce and analyze an intertemporal choice model where customer valuations are uncertain and evolve over time. The model leads directly to the study of call options on capacity that are similar to partially refundable fares. We show that the capacity provider earns significantly higher revenues by selling real options on capacity than on low-to-high pricing. We also investigate the social implications and show that the use of options is both socially optimal and socially efficient.

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