Risk-Averse Capacity Control in Revenue Management

1. Front Matter

   Pages I-XIII

   PDF

2. Introduction

   1. Introduction

      Pages 1-13

3. Basic Principles

   1. Front Matter

      Pages 15-18

      PDF

   2. Markov Decision Processes and the Total Reward Criterion

      Pages 19-27

   3. Expected Utility Theory for Sequential Decision Making

      Pages 29-41

4. Expected Revenue Maximizing Capacity Control

   1. Front Matter

      Pages 43-45

      PDF

   2. Capacity Control in a Random Environment

      Pages 47-62

   3. Basic Single Resource Capacity Control Models in Revenue Management

      Pages 63-78

5. Expected Utility Maximizing Capacity Control

   1. Front Matter

      Pages 79-81

      PDF

   2. Capacity Control Maximizing Additive Time-Separable Utility

      Pages 83-94

   3. Capacity Control Maximizing Atemporal Utility

      Pages 95-124

   4. An Extension: Capacity Control Under a General Discrete Choice Model of Consumer Behavior

      Pages 125-138

   5. Conclusion

      Pages 139-141

6. Back Matter

   Pages 143-163

   PDF

“If necessity is the mother of invention, then deregulation is the father, and r- enue management (also known as yield management) is the couple’s golden child – at least as far as operations research is concerned.” (Horner, 2000, p. 47) Deregulation had a signi?cant impact on the U.S. airline industry in the late 1970s. Charter and low-cost airlines such as People Express and Southwest wereabletoo?erseatsatafractionofthepricechargedbyestablishedcarriers like Pan Am and American Airlines. Due to their di?erent cost structure, it seemed to be impossible for the big carriers to o?er tickets at the same low price. Yet they had to ?nd a way to compete. Robert L. Crandall from American Airlines is widely credited with the - lution to the problem:yield management – today calledrevenue management, since it maximizes revenue earned on a ?ight rather than yield (revenue per passenger mile). The idea was simple: American Airlines ?ights were only half full on - erage. O?ering the empty seats at a discount price would not only enable the carriers to compete with the low-cost airlines but even create additional r- enue, if (1) it were possible to prevent cannibalization, i.e. the sale of discount tickets to consumers who would otherwise be willing to pay full fare, and if (2) it could be assured that only the seats that would otherwise ?y empty were sold at the low price.

• Expected Utility Theory
• Markov Decision Processes
• Revenue Management
• Risk-Sensitive Control
• management
• modeling

• Fakultät für Wirtschaftswissenschaften, Universität Karlsruhe (TH), Karlsruhe, Germany

  Christiane Barz

Policies and ethics