Provably Near-Optimal LP-Based Policies for Revenue Management in Systems with Reusable Resources

27 Pages Posted: 7 May 2008

See all articles by Retsef Levi

Retsef Levi

MIT Sloan School of Management - Operations Research Center

Ana Radovanovic

IBM Corporation - Thomas J. Watson Research Center

Date Written: February 7, 2008

Abstract

Motivated by emerging applications in workforce management, we consider a class of revenue management problems in systems with reusable resources. The corresponding applications are modeled using the well-known loss network systems.

We use an extremely simple linear program (LP) that provides an upper bound on the best achievable expected long-run revenue rate. The optimal solution of the LP is used to devise a conceptually simple control policy that we call the class selection policy (CSP). Moreover, the LP is used to analyze the performance of the CSP policy. We obtain the first control policy with uniform performance guarantees. In particular, for the model with single resource and uniform resource requirements, the CSP policy is guaranteed to have expected long-run revenue rate that is at least half of the best achievable. More generally, as the ratio between the capacity of the system and the maximum resource requirement grows to infinity, the CSP policy is asymptotically optimal, regardless of any other parameter of the problem. The asymptotic performance analysis that we obtain is more general than existing results in several important dimensions. It is based on several novel ideas that we believe will be useful in other settings.

Keywords: Revenue Management, Linear Programming, Approximation Algorithms, Asymptotic Optimality

Suggested Citation

Levi, Retsef and Radovanovic, Ana, Provably Near-Optimal LP-Based Policies for Revenue Management in Systems with Reusable Resources (February 7, 2008). MIT Sloan Research Paper No. 4702-08, Available at SSRN: https://ssrn.com/abstract=1130218 or http://dx.doi.org/10.2139/ssrn.1130218

Retsef Levi (Contact Author)

MIT Sloan School of Management - Operations Research Center ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Ana Radovanovic

IBM Corporation - Thomas J. Watson Research Center ( email )

Route 134
Kitchawan Road
Yorktown Heights, NY 10598
United States

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