Revenue Management for a Multiclass Single-Server Queue via a Fluid Model Analysis

Constantinos Maglaras ()
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Constantinos Maglaras: Columbia Business School, Columbia University, 409 Uris Hall, 3022 Broadway, New York, New York 10027

Operations Research, 2006, vol. 54, issue 5, 914-932

Abstract: Motivated by the recent adoption of tactical pricing strategies in manufacturing settings, this paper studies a problem of dynamic pricing for a multiproduct make-to-order system. Specifically, for a multiclass M n / M /1 queue with controllable arrival rates, general demand curves, and linear holding costs, we study the problem of maximizing the expected revenues minus holding costs by selecting a pair of dynamic pricing and sequencing policies. Using a deterministic and continuous (fluid model) relaxation of this problem, which can be justified asymptotically as the capacity and the potential demand grow large, we show the following: (i) greedy sequencing (i.e., the c (mu)-rule) is optimal, (ii) the optimal pricing and sequencing decisions decouple in finite time, after which (iii) the system evolution and thus the optimal prices depend only on the total workload. Building on (i)--(iii), we propose a one-dimensional workload relaxation to the fluid pricing problem that is simpler to analyze, and leads to intuitive and implementable pricing heuristics. Numerical results illustrate the near-optimal performance of the fluid heuristics and the benefits from dynamic pricing.

Keywords: revenue management; yield management; dynamic pricing; queuing; sequencing; fluid models (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (11)

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