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Stochastic revenue management models for media broadcasting

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An important challenge faced by media broadcasting companies is how to allocate limited advertising space between upfront contracts and the scatter market in order to maximize profits and meet contractual commitments. The authors develop stylised client-centric optimisation models of inventory allocation under audience uncertainty and general performance metrics. In a static setting, they obtain closed form solutions for upfront contract optimisation and allocation. Interesting parallels with standard inventory, service and revenue management frameworks are revealed. In a dynamic setting, they provide recommendations for optimal make-goods allocation under reversible and irreversible commitment strategies. They model the problem as a dynamic program and characterize the impact of contract parameters, audience and time on the expected profit and optimal allocation policy. Numeric results indicate that simple heuristics perform well if adapted to the importance of the client.

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