Managing Flexible Products on a Network

42 Pages Posted: 27 Apr 2020

See all articles by Guillermo Gallego

Guillermo Gallego

HKUST

Garud Iyengar

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Robert Phillips

Columbia University - Columbia Business School, Decision Risk and Operations

Abhay Dubey

affiliation not provided to SSRN

Date Written: July 1, 2004

Abstract

A flexible product is a menu of two or more alternatives products serving the same market. Purchasers of flexible products are assigned to one of the alternatives at a later date. Gallego and Phillips show that capacitated suppliers, such as airlines and hotels, can potentially improve revenue by offering flexible products in addition to traditional specific products. In this paper, we extend the concept of flexible products to networks. We study the network revenue management problem with flexible products in two different settings: one where the demand for each product is independently and exogenously generated; and the other where the demand is driven by a consumer choice model. We show that in both these settings the optimal value of the stochastic optimization problem can be closely approximated by the optimal value of a deterministic linear program. In the independent demand case the corresponding linear program is of modest size. When the demand is driven by a customer choice model, the linear program has exponentially many variables; however, we show that for an important class of consumer choice models the linear program can be efficiently solved using column-generation. We report the findings of numerical experiments with a real airline subnetwork and show how the results vary as a function of the key inputs.

Keywords: Flexible products, network revenue management

JEL Classification: M11

Suggested Citation

Gallego, Guillermo and Iyengar, Garud and Phillips, Robert and Dubey, Abhay, Managing Flexible Products on a Network (July 1, 2004). Available at SSRN: https://ssrn.com/abstract=3567371 or http://dx.doi.org/10.2139/ssrn.3567371

Guillermo Gallego

HKUST ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

HOME PAGE: http://https://seng.ust.hk/about/people/faculty/guillermo-gallego

Garud Iyengar (Contact Author)

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

Robert Phillips

Columbia University - Columbia Business School, Decision Risk and Operations ( email )

New York, NY
United States

Abhay Dubey

affiliation not provided to SSRN

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
275
Abstract Views
822
rank
158,133
PlumX Metrics