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Pricing and revenue management with stochastic demand: coordinated versus hierarchical approaches (RV of 2008/47/DS/TOM)

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We investigate the value of coordinating static pricing and revenue management availability decisions under price-sensitive demand uncertainty. We first characterize a general class of stochastic, price-dependent demand models; these lead to several static pricing and revenue management models that can be solved efficiently and admit unique solutions with intuitive sensitivity properties. We then compare the performance of various hierarchical and coordinated models, shedding light on the value of coordinating price and availability decisions as well as of modelling demand uncertainty and resource substitution in pricing and revenue management. Our numerical insights, which are based on industry data, suggest that capturing price-sensitive demand uncertainty in a hierarchical revenue management process can yield significant revenue benefits and thereby achieve most of the potential of a fully coordinated process.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2010/2010-83.pdf

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Copyright INSEAD. All rights reserved