A simulation study: comparing the Markov decision process approach to the expected marginal seat revenue b heuristic under differing demand behaviour

Michael Frank, Martin Friedemann and Anika Schroder

International Journal of Revenue Management, 2009, vol. 3, issue 2, 133-147

Abstract: In this article, we compare Markov Decision Process (MDP) to expected marginal seat revenue b (EMSRb) under realistic demand behaviour by implementing both in a stochastic simulation model. First come first served as well as an upper bound, serves for reference. We give a short explanation of the investigated methods, describe the simulation setup, in particular the demand model, and carry out sensitivity analyses regarding settings of the demand generator and the optimisation methods. Computational results show that MDP outperforms EMSRb in all investigated scenarios but we raise the question how much improvement is needed to justify the additional effort of the more complicated procedure.

Keywords: dependent demand; EMSRb; expected marginal seat revenue b; MDP; Markov decision process; revenue management; stochastic simulation; upselling; demand behaviour. (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijrevm:v:3:y:2009:i:2:p:133-147

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