Cargo Revenue Management: Bid-Prices for a 0-1 Multi Knapsack Problem

K. Pak and Rommert Dekker

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: Revenue management is the practice of selecting those customers that generate the maximum revenue from a fixed and perishable capacity. Cargo revenue management differs from the well-known passenger revenue management problem by the fact that its capacity constraint is 2-dimensional, i.e. weight and volume, and that the weight, volume and profit of each booking request are random and continuous variables. This leads to a multi-dimensional on-line knapsack problem. We show that a bid-price acceptance policy is asymptotically optimal if demand and capacity increase proportionally and the bid-prices are set correctly. We provide a heuristic to set the bid-prices based on a greedy algorithm for the multi-knapsack problem proposed by Rinnooy Kan et al. (1993). A test case shows that these bid-prices perform better than the traditional LP-based bid-prices that do not perform well at all for this problem.

Keywords: cargo transportation; multi-dimensional knapsack; on-line knapsack; revenue management (search for similar items in EconPapers)
JEL-codes: C61 M M11 R4 (search for similar items in EconPapers)
Date: 2004-08-06
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Citations: View citations in EconPapers (12)

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