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Structural properties of Markov modulated revenue management problems

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  • Özkan, Can
  • Karaesmen, Fikri
  • Özekici, Süleyman

Abstract

The admission decision is one of the fundamental categories of demand-management decisions. In the dynamic model of the single-resource capacity control problem, the distribution of demand does not explicitly depend on external conditions. However, in reality, demand may depend on the current external environment which represents the prevailing economic, financial, social or other factors that affect customer behavior. We formulate a Markov Decision Process (MDP) to maximize expected revenues over a finite horizon that explicitly models the current environment. We derive some structural results of the optimal admission policy, including the existence of an environment-dependent thresholds and a comparison of threshold levels in different environments. We also present some computational results which illustrate these structural properties. Finally, we extend some of the results to a related dynamic pricing formulation.

Suggested Citation

  • Özkan, Can & Karaesmen, Fikri & Özekici, Süleyman, 2013. "Structural properties of Markov modulated revenue management problems," European Journal of Operational Research, Elsevier, vol. 225(2), pages 324-331.
    • Handle: RePEc:eee:ejores:v:225:y:2013:i:2:p:324-331
    DOI: 10.1016/j.ejor.2012.09.020
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    6. E. Lerzan Örmeci & Evrim Didem Güneş & Derya Kunduzcu, 2016. "A Modeling Framework for Control of Preventive Services," Manufacturing & Service Operations Management, INFORMS, vol. 18(2), pages 227-244, May.

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