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Revenue Management

  1. Guillermo Gallego

Published Online: 14 JAN 2011

DOI: 10.1002/9780470400531.eorms0134

Wiley Encyclopedia of Operations Research and Management Science

Wiley Encyclopedia of Operations Research and Management Science

How to Cite

Gallego, G. 2011. Revenue Management. Wiley Encyclopedia of Operations Research and Management Science. .

Author Information

  1. IEOR, Columbia University, New York, New York

Publication History

  1. Published Online: 14 JAN 2011

Abstract

Providers of perishable capacity sold through reservation systems typically impose purchase and usage restrictions to sell the same capacity to different customers at different prices. We will assume that the fare structure (a menu of prices and restrictions) is given and that the capacity provider's goal is to allocate capacity among fare classes to maximize expected revenues. We first analyze the single resource, multiple-fare case and then investigate the network model under the assumption of independent demands. Independent demand models are appropriate if fares are well differentiated and alternative sources of capacity are available to customers who are unable to find their preferred fare. When fares are not well differentiated, or alternative sources of capacity are not readily available, customers may buy up to the next higher fare if their preferred fare is not available. Demand dependencies can significantly erode revenues when controls are based on independent demand models. Researchers and practitioners have been actively trying to find solutions that take into account demand dependencies through the use of discrete choice models. We present a summary of these works and point out directions for future research.

Keywords:

  • revenue management;
  • value function;
  • network revenue management;
  • RM