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Using Dynamic Programming Decomposition for Revenue Management with Opaque Products

Business Research 6 (2013), Issue 1, pp. 94-115

23 Pages Posted: 25 Jan 2011 Last revised: 15 Jul 2015

Jochen Gönsch

University of Duisburg-Essen - Mercator School of Management

Claudius Steinhardt

Bundeswehr University Munich (UniBw) - Department of Quantitative Methods

Multiple version iconThere are 2 versions of this paper

Date Written: April 26, 2013

Abstract

Opaque products enable service providers to hide specific characteristics of their service fulfillment from the customer until after purchase. Prominent examples include internet-based service providers selling airline tickets without defining details, such as departure time or operating airline, until the booking has been made. Owing to the resulting flexibility in resource utilization, the traditional revenue management process needs to be modified. In this paper, we extend dynamic programming decomposition techniques widely used for traditional revenue management to develop an intuitive capacity control approach that allows for the incorporation of opaque products. In a simulation study, we show that the developed approach significantly outperforms other well-known capacity control approaches adapted to the opaque product setting. Based on the approach, we also provide computational examples of how the share of opaque products as well as the degree of opacity can influence the results.

Keywords: Revenue Management, Opaque Products, Capacity Control, Dynamic Programming Decomposition

JEL Classification: C61, M11, L91, L93

Suggested Citation

Gönsch, Jochen and Steinhardt, Claudius, Using Dynamic Programming Decomposition for Revenue Management with Opaque Products (April 26, 2013). Business Research 6 (2013), Issue 1, pp. 94-115. Available at SSRN: https://ssrn.com/abstract=1567645

Jochen Gönsch (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
+49 203 379 - 2777 (Phone)
+49 203 379 - 1760 (Fax)

HOME PAGE: http://udue.de/goensch

Claudius Steinhardt

Bundeswehr University Munich (UniBw) - Department of Quantitative Methods ( email )

Neubibeg, 85577
Germany
+49 89 6004 - 4234 (Phone)
+49 89 6004 - 3080 (Fax)

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