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Bid-price behavior in network RM: Forecast decrementing and bid-price bounding

Author

Listed:
  • Adam Bockelie

    (MIT International Center for Air Transportation)

  • Peter Belobaba

    (MIT International Center for Air Transportation)

Abstract

This article investigates two practical concerns with bid-price control origin–destination (OD) revenue management (RM) systems. First, we examine forecast decrementing methods for the common situation where demand forecast generation is decoupled from booking policy optimization. Second, we explore the impacts of two bounding schemes designed to eliminate bid price declines close to departure. Using the Passenger Origin–Destination Simulator (PODS), we find (i) more sophisticated forecast decrements increase revenue compared with the traditional approach when combined with advanced forecasting methods incorporating passenger willingness to pay and (ii) bid price bounds increase revenue with standard forecasting methods but decrease revenue with advanced forecasting methods.

Suggested Citation

  • Adam Bockelie & Peter Belobaba, 2016. "Bid-price behavior in network RM: Forecast decrementing and bid-price bounding," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 15(2), pages 95-106, April.
    • Handle: RePEc:pal:jorapm:v:15:y:2016:i:2:d:10.1057_rpm.2016.22
    DOI: 10.1057/rpm.2016.22
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    References listed on IDEAS

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    1. Kalyan Talluri & Garrett van Ryzin, 1998. "An Analysis of Bid-Price Controls for Network Revenue Management," Management Science, INFORMS, vol. 44(11-Part-1), pages 1577-1593, November.
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    3. Conrad J. Lautenbacher & Shaler Stidham, 1999. "The Underlying Markov Decision Process in the Single-Leg Airline Yield-Management Problem," Transportation Science, INFORMS, vol. 33(2), pages 136-146, May.
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