The Effect of Demand Uncertainty on the Decisions and Revenues in the Two Class Revenue Management Model

Ayse Kocabiyikoğlu
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Ayse Kocabiyikoğlu: Bilkent Üniversitesi

Iktisat Isletme ve Finans, 2015, vol. 30, issue 347, 95-120

Abstract: We explore the impact of changes in market conditions on optimal allocation decisions and revenues, within the standard two-class revenue management framework, using stochastic dominance relations. We show that an increase in market size leads to higher revenues, and the number of units allocated to the high-end class increases in its market size. The direction of the change in optimal allocation and revenues in response to changes in the variability of the high-end market depends on the relationship between the high and lowend prices. Our structural and numerical results suggest higher variability in the market is generally detrimental to revenues.

Keywords: Revenue Management; Production Management (search for similar items in EconPapers)
JEL-codes: M11 (search for similar items in EconPapers)
Date: 2015
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