Relationships Among Three Assumptions in Revenue Management

Serhan Ziya (), Hayriye Ayhan () and Robert D. Foley ()
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Serhan Ziya: Department of Statistics and Operations Research, University of North Carolina, CB# 3260, 213 Smith Building, Chapel Hill, North Carolina 27599-3180
Hayriye Ayhan: School of Industrial and Systems Engineering, Georgia Institute of Technology, 765 Ferst Drive, Atlanta, Georgia 30332-0205
Robert D. Foley: School of Industrial and Systems Engineering, Georgia Institute of Technology, 765 Ferst Drive, Atlanta, Georgia 30332-0205

Operations Research, 2004, vol. 52, issue 5, 804-809

Abstract: This note discusses the relationships among three assumptions that appear frequently in the pricing/revenue management literature. These assumptions are mostly needed for analytical tractability, and they have the common property of ensuring a well-behaved “revenue function.” The three assumptions are decreasing marginal revenue with respect to demand, decreasing marginal revenue with respect to price, and increasing price elasticity of demand. We provide proofs and examples to show that none of these conditions implies any other. However, they can be ordered from strongest to weakest over restricted regions, and the ordering depends upon the region.

Keywords: marketing; pricing; economics; marginal revenue; price elasticity of demand (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (44)

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