A Discrete Choice Model of Yield Management

UPF Economics and Business Working Paper No. 533

20 Pages Posted: 29 Jun 2001

See all articles by Kalyan Talluri

Kalyan Talluri

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Garrett van Ryzin

Cornell Tech; Lyft, Inc.

Abstract

Customer choice behavior, such as "buy-up" and "buy-down", is an important phenomenon in a wide range of industries. Yet there are few models or methodologies available to exploit this phenomenon within yield management systems. We make some progress on filling this void. Specifically, we develop a model of yield management in which the buyers' behavior is modeled explicitly using a multi-nomial logit model of demand. The control problem is to decide which subset of fare classes to offer at each point in time. We formulate a dynamic program to determine the optimal control policy and show that it reduces to a dynamic nested allocation policy.

Keywords: Yield management, revenue management, discrete choice theory, airlines, dynamic programming

JEL Classification: C13, C14

Suggested Citation

Talluri, Kalyan and van Ryzin, Garrett, A Discrete Choice Model of Yield Management. UPF Economics and Business Working Paper No. 533. Available at SSRN: https://ssrn.com/abstract=273420 or http://dx.doi.org/10.2139/ssrn.273420

Kalyan Talluri (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 17 50 (Phone)
(34) 93 542 17 46 (Fax)

Garrett Van Ryzin

Cornell Tech ( email )

2 W Loop Rd
New York, NY 10044
United States

Lyft, Inc. ( email )

San Francisco, CA

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