Revenue Management of Callable Products

Guillermo Gallego (), S. G. Kou () and Robert Phillips ()
Additional contact information
Guillermo Gallego: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
S. G. Kou: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Robert Phillips: Nomis Solutions, Inc., San Bruno, California 94066

Management Science, 2008, vol. 54, issue 3, 550-564

Abstract: A callable product is a unit of capacity sold to self-selected low-fare customers who willingly grant the capacity provider the option to "call" the capacity at a prespecified recall price. We analyze callable products in a finite-capacity setting with two fare classes where low-fare customers book first, and show that callable products provide a riskless source of additional revenue to the capacity provider. An optimal recall price and an optimal discount-fare booking limit for the two-period problem are obtained. Numerical examples show the benefits from offering callable products can be significant, especially when high-fare demand uncertainty is large. Extensions to multifare structures, network models, overbooking, and to other industries are discussed.

Keywords: revenue management; product design; overbooking; capacity allocation (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:54:y:2008:i:3:p:550-564

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