A Continuous-Time Yield Management Model with Multiple Prices and Reversible Price Changes

Youyi Feng · Baichun Xiao

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Supply Chain and Inventory Management Advanced Queuing Theory Analysis Optimization and Search Problems

Abstract

This article studies a continuous-time yield management model in which reversible price changes are allowed. We assume that perishable assets are offered at a set of discrete price levels. Demand at each level is a Poisson process. To maximize the expected revenue, management controls the price dynamically as sales evolve. We show that a subset of these prices that form a concave envelope is potentially optimal. We formulate the problem into an intensity control model and derive the optimal solution in closed form. Properties of the optimal solution and their policy implementations are discussed. Numerical examples are provided.

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References

1994Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons 1983Point Processes and Queues: Martingale Dynamics.1992Yield Management at American Airlines 1992A Taxonomy and Research Overview of Perishable-Asset Revenue Management: Yield Management, Overbooking, and Pricing 1989OR Practice—Application of a Probabilistic Decision Model to Airline Seat Inventory Control 1999Airline Yield Management with Overbooking, Cancellations, and No-Shows 1987Survey Paper—Airline Yield Management An Overview of Seat Inventory Control 1995Optimal Starting Times for End-of-Season Sales and Optimal Stopping Times for Promotional Fares

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