On Revenue Management with Strategic Customers Choosing When and What to Buy

36 Pages Posted: 27 Apr 2017 Last revised: 17 Jun 2018

See all articles by Yiwei Chen

Yiwei Chen

University of Cincinnati - Lindner College of Business

Nikolaos Trichakis

Massachusetts Institute of Technology (MIT)

Date Written: May 29, 2018

Abstract

We study a network revenue management model in which a decision maker offers multiple products, which consume capacitated resources, for sale to customers over a finite horizon. The decision maker employs an anonymous posted-price policy, and arriving customers strategize on (a) when, and (b) which product to purchase so as to maximize their utility. Customers’ choices are driven by heterogeneous product valuations that decay over time at heterogeneous rates. Both initial valuations and decay rates are private information. We derive for all nonanticipating dynamic pricing policies an upper bound to expected revenues. We use our bound to conduct theoretical and numerical performance analyses of static pricing policies. In our theoretical analysis, we derive a constant factor guarantee for the performance of static pricing, for the classical fluid-type regime where inventory and demand grow large. Our numerical analysis shows static pricing to be able capture at least 75%-90% of maximum possible expected revenue under a wide range of realistic problem parameters, and suggests that static pricing is likely to perform better under higher product proliferation and lower load factor in the presence of strategic customers.

Keywords: Network Revenue Management, Dynamic Pricing, Mechanism Design, Strategic Customers, Customer Choice Models

Suggested Citation

Chen, Yiwei and Trichakis, Nikolaos, On Revenue Management with Strategic Customers Choosing When and What to Buy (May 29, 2018). Available at SSRN: https://ssrn.com/abstract=2959489 or http://dx.doi.org/10.2139/ssrn.2959489

Yiwei Chen (Contact Author)

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210195
Cincinnati, OH 45221-0195
United States

Nikolaos Trichakis

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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