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Fluid arrivals simulation for choice network revenue management

Thibault Barbier (), Miguel Anjos (), Fabien Cirinei () and Gilles Savard ()
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Thibault Barbier: Ecole Polytechnique Montreal
Miguel Anjos: Ecole Polytechnique Montreal
Fabien Cirinei: ExPretio Technologies
Gilles Savard: Ecole Polytechnique Montreal

Journal of Revenue and Pricing Management, 2019, vol. 18, issue 2, 164-180

Abstract: Abstract Since the beginning of revenue management, simulation has been used to estimate the expected revenue resulting from an availability policy. It has also been used to verify the quality of forecasts by projecting them onto past availability policies. Recently, it has been used in simulation-based optimization approaches to find the best policy. Simulation thus has a central role in revenue management. We focus on the choice network revenue management (CNRM) problem that incorporates multiple resources and customer behavior. The traditional CNRM simulation is based on discrete customer arrivals; we propose a new approach based on fluid arrivals. Our estimator is biased, but we observe that the bias is often insignificant in practice and appears to be asymptotically null. Our approach consistently outperforms the traditional simulation in terms of estimation time and is thus a better choice for large instances. We also prove that it is equivalent to an approximation for the CNRM availability policy optimization problem. This equivalence limits the value of simulation-based optimization methods but allows us to propose heuristics to rapidly support the optimization.

Keywords: Revenue management; Fluid arrivals simulation; Choice behavior; Availability control; Simulation-based optimization (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:pal:jorapm:v:18:y:2019:i:2:d:10.1057_s41272-018-00172-4