An Analysis of Bid-Price Controls for Network Revenue Management

Kalyan Talluri and Garrett van Ryzin
Additional contact information
Kalyan Talluri: Universitat Pompeu Fabra, 27 Ramon Trias Fargas, 08005 Barcelona, Spain
Garrett van Ryzin: 412 Uris Hall, Columbia University, New York, New York 10027

Management Science, 1998, vol. 44, issue 11-Part-1, 1577-1593

Abstract: Bid-prices are becoming an increasingly popular method for controlling the sale of inventory in revenue management applications. In this form of control, threshold---or "bid"---prices are set for the resources or units of inventory (seats on flight legs, hotel rooms on specific dates, etc.) and a product (a seat in a fare class on an itinerary or room for a sequence of dates) is sold only if the offered fare exceeds the sum of the threshold prices of all the resources needed to supply the product. This approach is appealing on intuitive and practical grounds, but the theory underlying it is not well developed. Moreover, the extent to which bid-price controls represent optimal or near optimal policies is not well understood. Using a general model of the demand process, we show that bid-price control is not optimal in general and analyze why bid-price schemes can fail to produce correct accept/deny decisions. However, we prove that when leg capacities and sales volumes are large, bid-price controls are asymptotically optimal, provided the right bid prices are used. We also provide analytical upper bounds on the optimal revenue. In addition, we analyze properties of the asymptotically optimal bid prices. For example, we show they are constant over time, even when demand is nonstationary, and that they may not be unique.

Keywords: Bid Prices; Optimality; Yield Management; Revenue Management; Airlines; Dynamic Programming; Heuristics; Asymptotic Analysis (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (113)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.44.11.1577 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:44:y:1998:i:11-part-1:p:1577-1593

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().