Revenue Management with Partially Refundable Fares

Guillermo Gallego () and Özge Şahin ()
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Guillermo Gallego: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Özge Şahin: Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109

Operations Research, 2010, vol. 58, issue 4-part-1, 817-833

Abstract: We introduce and analyze an intertemporal choice model where customer valuations are uncertain and evolve over time. The model leads directly to the study of call options on capacity that are similar to partially refundable fares. We show that the capacity provider earns significantly higher revenues by selling real options on capacity than on low-to-high pricing. We also investigate the social implications and show that the use of options is both socially optimal and socially efficient.

Keywords: pricing; revenue management; real options; stochastic; transportation (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:58:y:2010:i:4-part-1:p:817-833

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