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Capacity and pricing policies with consumer overflow behavior

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  • Li, Juan
  • Tang, Ou

Abstract

We analyze consumers' choice and overflow behavior between two potential market segments with different fares, capacity allocated, and then develop the optimal capacity and pricing polices assuming that such consumers' strategic behavior can be observed. Every consumer prefers to choose a fare to obtain their utmost value surplus, and select the second if the first-best choice cannot be satisfied. Our study indicates that the effort of fencing the segments should be considered to cope properly with pricing and capacity decisions in order to direct the overflows. Disregarding overflows could create differences in decisions as well as economic consequences. The study results can be implemented, but not limited, to understand the flight seat allocation problem with strategic consumers.

Suggested Citation

  • Li, Juan & Tang, Ou, 2012. "Capacity and pricing policies with consumer overflow behavior," International Journal of Production Economics, Elsevier, vol. 140(2), pages 825-832.
    • Handle: RePEc:eee:proeco:v:140:y:2012:i:2:p:825-832
    DOI: 10.1016/j.ijpe.2012.02.013
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    References listed on IDEAS

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    Cited by:

    1. Mayer, Stefan & Klein, Robert & Seiermann, Stephanie, 2013. "A simulation-based approach to price optimisation of the mixed bundling problem with capacity constraints," International Journal of Production Economics, Elsevier, vol. 145(2), pages 584-598.
    2. Kim, Sang-Won, 2015. "The impact of customer buying behavior on the optimal allocation decisions," International Journal of Production Economics, Elsevier, vol. 163(C), pages 71-88.
    3. Dieudonné Tchuente & Serge Nyawa, 2022. "Real estate price estimation in French cities using geocoding and machine learning," Annals of Operations Research, Springer, vol. 308(1), pages 571-608, January.
    4. Du, Jie & Zhang, Juliang & Hua, Guowei, 2015. "Pricing and inventory management in the presence of strategic customers with risk preference and decreasing value," International Journal of Production Economics, Elsevier, vol. 164(C), pages 160-166.

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