Cargo Revenue Management: Bid-Prices for a 0-1 Multi Knapsack Problem

28 Pages Posted: 28 Sep 2004

See all articles by Kevin Pak

Kevin Pak

Erasmus Research Institute of Management (ERIM); Erasmus University Rotterdam (EUR) - Department of Econometrics

Rommert Dekker

Econometric Institute; Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ; Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM) ; Tinbergen Institute Rotterdam

Date Written: June 2004 8,

Abstract

Revenue management is the practice of selecting those customers that generate the maximum revenue from a fixed and perishable capacity. Cargo revenue management differs from the well-known passenger revenue management problem by the fact that its capacity constraint is 2-dimensional, i.e. weight and volume, and that the weight, volume and profit of each booking request are random and continuous variables. This leads to a multi-dimensional on-line knapsack problem. We show that a bid-price acceptance policy is asymptotically optimal if demand and capacity increase proportionally and the bid-prices are set correctly. We provide a heuristic to set the bid-prices based on a greedy algorithm for the multi-knapsack problem proposed by Rinnooy Kan et al. (1993). A test case shows that these bid-prices perform better than the traditional LP-based bid-prices that do not perform well at all for this problem.

Keywords: revenue management, cargo transportation, on-line knapsack, multi-dimensional knapsack

JEL Classification: M, M11, R4, C61

Suggested Citation

Pak, Kevin and Dekker, Rommert, Cargo Revenue Management: Bid-Prices for a 0-1 Multi Knapsack Problem (June 2004 8,). ERIM Report Series Reference No. ERS-2004-055-LIS. Available at SSRN: https://ssrn.com/abstract=594991

Kevin Pak (Contact Author)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus University Rotterdam (EUR) - Department of Econometrics

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Rommert Dekker

Econometric Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

HOME PAGE: http://https://www.eur.nl/people/rommert-dekker

Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 1274 (Phone)
+31 10 408 9162 (Fax)

HOME PAGE: http://www.few.eur.nl/few/people/rdekker/

Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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