Computing booking limits under a non-parametric demand model: A mathematical programming approach

In revenue management, booking limits are commonly used to restrict access to classes of products, to subsequently make way for more profitable ones. Frequently, this inventory control policy assumes that products are nested in decreasing order of revenue, and that less profitable products are denied access first. In this article, we propose for the computation of nested booking limits a flexible mathematical programming framework that can accommodate business rules and technical constraints common in the industry. Under the assumption that customers are characterized by ordered lists of their preferences, optimal policies are set through the solution of a mixed integer program that is amenable to an efficient and scalable column generation algorithm. Numerical tests illustrate the improved performance of the resulting policies, which are numerically tested against alternative proposals from the current literature.