Toward Robust Revenue Management: Competitive Analysis of Online Booking

Abstract

In this paper, we consider the revenue management problem from the perspective of online algorithms. This approach eliminates the need for both demand forecasts and a risk neutrality assumption. The competitive ratio of a policy relative to a given input sequence is the ratio of the policy's performance to the offline optimal. Under the online algorithm approach, revenue management policies are evaluated based on highest competitive ratio they can guarantee. We are able to define lower bounds on the best possible performance and describe policies that achieve these lower bounds. We address the 2-fare problem in greatest detail but also treat the general multi-fare problem and the bid-price control problem.

Keywords: revenue management, online algorithms