Uncertain about your travel plan? Lock it and decide later: Dynamic pricing with a fare-lock option

Ming Chen and Zhi-Long Chen

Transportation Research Part E: Logistics and Transportation Review, 2019, vol. 125, issue C, 1-26

Abstract: Some airlines now offer fare-lock options, which allow passengers to hold a ticket for some time with a small fee while finalizing their travel plans. In this paper, we model passenger behavior in the presence of a fare-lock option and study the corresponding airline’s dynamic pricing problem. We prove some monotonicity properties and generate a number of managerial insights on possible implications of the fare-lock option on the airline’s revenue and optimal pricing structure, the social welfare, and the passenger surplus. We also develop an approximation algorithm that is capable of generating near-optimal solutions for large problem instances quickly.

Keywords: Revenue management; Dynamic pricing; Fare-lock option; Dynamic programming; Approximation algorithm (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.tre.2019.02.003

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