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Revenue management approach to stochastic capacity allocation problem

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  • Modarres, Mohammad
  • Sharifyazdi, Mehdi

Abstract

To formulate stochastic capacity allocation problems in a manufacturing system, the concept and techniques of revenue management is applied in this research. It is assumed the production capacity is stochastic and hence its exact size cannot be forecasted in advance, at the time of planning. There are two classes of "frequent" and "occasional" customers demanding this capacity. The price rate as well as the penalty for order cancellation caused by overbooking is different for each class. The model is developed mathematically and we propose an analytical solution method. The properties of the optimal solution as well as the behavior of objective function are also analyzed. The objective function is not concave, in general. However, we prove it is a unimodal function and by taking advantage of this property, the optimal solution is determined.

Suggested Citation

  • Modarres, Mohammad & Sharifyazdi, Mehdi, 2009. "Revenue management approach to stochastic capacity allocation problem," European Journal of Operational Research, Elsevier, vol. 192(2), pages 442-459, January.
    • Handle: RePEc:eee:ejores:v:192:y:2009:i:2:p:442-459
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    References listed on IDEAS

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    4. Wu, Cheng-Hung & Chuang, Ya-Tang, 2010. "An innovative approach for strategic capacity portfolio planning under uncertainties," European Journal of Operational Research, Elsevier, vol. 207(2), pages 1002-1013, December.
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    7. Pırıl Tekin & Rızvan Erol, 2017. "A New Dynamic Pricing Model for the Effective Sustainability of Perishable Product Life Cycle," Sustainability, MDPI, vol. 9(8), pages 1-22, July.

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