Joint Design and Pricing on a Network

Luce Brotcorne (), Martine Labbé (), Patrice Marcotte () and Gilles Savard ()
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Luce Brotcorne: LAMIH/ROI, Université de Valenciennes, 59313 Valenciennes Cedex 9, France
Martine Labbé: SMG and ISRO, Université Libre de Bruxelles, 1050 Brussels, Belgium
Patrice Marcotte: CIRRELT and Département d'Informatique et de Recherche Opérationnelle, Université de Montréal, Montreal, Quebec, Canada H3C 3J7
Gilles Savard: GERAD and Département de Mathématiques et de Génie Industriel, Ecole Polytechnique de Montréal, Montreal, Quebec, Canada H3C 3A7

Operations Research, 2008, vol. 56, issue 5, 1104-1115

Abstract: To optimize revenue, service firms must integrate within their pricing policies the rational reaction of customers to their price schedules. In the airline or telecommunication industry, this process is all the more complex due to interactions resulting from the structure of the supply network. In this paper, we consider a streamlined version of this situation where a firm's decision variables involve both prices and investments. We model this situation as a joint design and pricing problem that we formulate as a mixed-integer bilevel program, and whose properties are investigated. In particular, we take advantage of a feature of the model that allows the development of an algorithmic framework based on Lagrangean relaxation. This approach is entirely novel, and numerical results show that it is capable of solving problems of significant sizes.

Keywords: economics; pricing; games; integer programming; heuristics; transportation; programming; nonlinear; nondifferentiable (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (24)

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