A stochastic dynamic pricing model for the multiclass problems in the airline industry

Daniel F. Otero and Raha Akhavan-Tabatabaei

European Journal of Operational Research, 2015, vol. 242, issue 1, 188-200

Abstract: In the airline industry, deciding the ticket price for each flight directly affects the number of people that in the future will try to buy a ticket. Depending on the willingness-to-pay of the customers the flight might take off with empty seats or seats sold at a lower price. Therefore, based on the behavior of the customers, a price must be fixed for each type of product in each period. We propose a stochastic dynamic pricing model to solve this problem, applying phase type distributions and renewal processes to model the inter-arrival time between two customers that book a ticket and the probability that a customer buys a ticket. We test this model in a real-world case where as a result the revenue is increased on average by 31 percent.

Keywords: Revenue management; Phase-type distributions; Stochastic dynamic programming; Dynamic pricing; OR in airlines (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:242:y:2015:i:1:p:188-200

DOI: 10.1016/j.ejor.2014.09.038

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