Pricing and Capacity Rationing for Rentals with Uncertain Durations

Noah Gans () and Sergei Savin ()
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Noah Gans: The Wharton School, University of Pennsylvania, 3730 Walnut Street, Philadelphia, Pennsylvania 19104-6340
Sergei Savin: Graduate School of Business, Columbia University, 3022 Broadway at 117th Street, New York, New York 10027

Management Science, 2007, vol. 53, issue 3, 390-407

Abstract: We consider a rental firm with two types of customers. Contract customers pay fixed, prenegotiated rental fees and expect a high quality of service. Walk-in customers have no contractual relations with the firm and are "shopping for price." Given multiple contract and walk-in classes, the rental firm has to decide when to offer service to contract customers and what fees to charge walk-in customers for service. We formulate this rental management problem as a problem in stochastic control and characterize optimal policies for managing contract and walk-in customers. We also consider static, myopic controls that are simpler to implement, and we analytically establish conditions under which these policies perform optimally. Complementary numerical tests provide a sense of the range of systems for which myopic policies are effective.

Keywords: dynamic programming; services; rentals; revenue management (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:53:y:2007:i:3:p:390-407

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