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An enhanced concave program relaxation for choice network revenue management

Joern Meissner, Arne Strauss and Kalyan Talluri ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: The network choice revenue management problem models customers as choosing from an offer-set, and the firm decides the best subset to offer at any given moment to maximize expected revenue. The resulting dynamic program for the firm is intractable and approximated by a deterministic linear program called the CDLP which has an exponential number of columns. However, under the choice-set paradigm when the segment consideration sets overlap, the CDLP is difficult to solve. Column generation has been proposed but finding an entering column has been shown to be NP-hard. In this paper, starting with a concave program formulation based on segment-level consideration sets called SDCP, we add a class of constraints called product constraints, that project onto subsets of intersections. In addition we propose a natural direct tightening of the SDCP called ?SDCP, and compare the performance of both methods on the benchmark data sets in the literature. Both the product constraints and the ?SDCP method are very simple and easy to implement and are applicable to the case of overlapping segment consideration sets. In our computational testing on the benchmark data sets in the literature, SDCP with product constraints achieves the CDLP value at a fraction of the CPU time taken by column generation and we believe is a very promising approach for quickly approximating CDLP when segment consideration sets overlap and the consideration sets themselves are relatively small.

Keywords: discrete-choice models; network revenue management; optimization (search for similar items in EconPapers)
JEL-codes: M11 M31 L93 L83 (search for similar items in EconPapers)
Date: 2011-01, Revised 2011-08
References: View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed

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Working Paper: An Enhanced Concave Program Relaxation for Choice Network Revenue Management (2011) Downloads
Working Paper: An Enhanced Concave Program Relaxation for Choice Network Revenue Management (2011) Downloads
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