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Joint pricing and revenue management with general stochastic demand (RV of 2005/42/DS)

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The authors extend the traditional revenue management paradigm to simultaneously optimize price and inventory decisions across three phases of the revenue management process: capacity investment, product design and intertemporal segmentation. They solve these problems under very general demand assumptions, which explain, unify and generalize state of the art models of stochastic price-dependent demand in operational price-inventory problems. Our demand models guarantee monotonicity of the price and allocation policies, in line with standard economic predictions. Central to their results is a new concept of stochastic sales elasticity, and its monotonicity with respect to price and inventory. For a two fare class revenue management model, numerical experiments indicate that jointly optimising the price and protection level for high fare customers leads to significant profit benefits over a hierarchical decision process.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2005/2005-44.pdf

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Copyright INSEAD. All rights reserved