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Bid-price control with origin–destination demand: A stochastic programming approach

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A bid-price policy is a revenue management scheme in which the marginal value of an asset (eg, a seat on a plane) is used to determine when arriving customers should be permitted to purchase the asset. In essence, when the price that the customer offers exceeds the bid price, a sale takes place. In this paper, we consider a stochastic programming-based approach to bid-price computations. We develop our model based on uncertain demand between origin–destination (O–D) pairs, and explicitly recognise that multiple routes are available for each O–D pair. A simulation-based demonstration of our approach suggests that our proposed methodology performs well when compared to deterministically based bid price computations.Journal of Revenue and Pricing Management (2007) 5, 291–304. doi:10.1057/palgrave.rpm.5160053
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Document Type: Research Article

Publication date: 2007-01-01

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