Using Yield Management to Shift Demand When the Peak Time is Unknown

Abstract:     
Traditional peak-load and stochastic peak-load models assume firms have prior information about when peak demand occurs. However, price dispersion, such as is typically used by firms practicing yield management, can achieve some of the same efficient demand shifting even when the peak time is unknown. Equilibrium price dispersion arises because of stochastic demand and price rigidities, but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting. The model also suggests how yield management (now more commonly called revenue management) might actually benefit business travellers, contrary to the popular prejudice.

JEL Classification: L11

Accepted Paper Series