Dynamic Bid Prices in Revenue Management

Daniel Adelman ()
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Daniel Adelman: Graduate School of Business, University of Chicago, Chicago, Illinois 60637

Operations Research, 2007, vol. 55, issue 4, 647-661

Abstract: We formally derive the standard deterministic linear program (LP) for bid-price control by making an affine functional approximation to the optimal dynamic programming value function. This affine functional approximation gives rise to a new LP that yields tighter bounds than the standard LP. Whereas the standard LP computes static bid prices, our LP computes a time trajectory of bid prices. We show that there exist dynamic bid prices, optimal for the LP, that are individually monotone with respect to time. We provide a column generation procedure for solving the LP within a desired optimality tolerance, and present numerical results on computational and economic performance.

Keywords: revenue management; pricing; network; bid prices; dynamic programming/optimal control; applications; approximate (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (82)

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