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Uncertain about your travel plan? Lock it and decide later: Dynamic pricing with a fare-lock option

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  • Chen, Ming
  • Chen, Zhi-Long

Abstract

Some airlines now offer fare-lock options, which allow passengers to hold a ticket for some time with a small fee while finalizing their travel plans. In this paper, we model passenger behavior in the presence of a fare-lock option and study the corresponding airline’s dynamic pricing problem. We prove some monotonicity properties and generate a number of managerial insights on possible implications of the fare-lock option on the airline’s revenue and optimal pricing structure, the social welfare, and the passenger surplus. We also develop an approximation algorithm that is capable of generating near-optimal solutions for large problem instances quickly.

Suggested Citation

  • Chen, Ming & Chen, Zhi-Long, 2019. "Uncertain about your travel plan? Lock it and decide later: Dynamic pricing with a fare-lock option," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 1-26.
    • Handle: RePEc:eee:transe:v:125:y:2019:i:c:p:1-26
    DOI: 10.1016/j.tre.2019.02.003
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