Dynamic pricing of airline tickets with competition

Currie, C.S.M., Cheng, R.C.H. and Smith, H.K. (2008) Dynamic pricing of airline tickets with competition. Journal of the Operational Research Society, 59, (8), 1026-1037. (doi:10.1057/palgrave.jors.2602425).


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Competition has a huge influence on customer buying behaviour and will impact on the optimal price that companies should charge for goods or services. To date, many dynamic pricing models have not modelled competition explicitly. In this paper, we introduce pricing strategies that maximize revenue when selling an inventory of identical items by a fixed time and where there is a competing seller. The model used incorporates a probabilistic formulation of customer demand, which is influenced by the prices offered by the company and the competitor, and the time remaining until the end of the selling period. Calculus of variations is used to solve the problem and simple conditions are given that ensure the uniqueness of a solution. Illustrative examples are included. A practical implementation that uses dynamic updating is proposed and tested using simulated data, showing the effectiveness of the method.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1057/palgrave.jors.2602425
ISSNs: 0160-5682 (print)
Keywords: yield management, revenue management, competition, dynamic pricing, air transport
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HE Transportation and Communications
H Social Sciences > HF Commerce
Divisions : University Structure - Pre August 2011 > School of Mathematics > Operational Research
ePrint ID: 64207
Accepted Date and Publication Date:
August 2008Published
23 May 2007Made publicly available
Date Deposited: 13 Jan 2009
Last Modified: 31 Mar 2016 12:49
URI: http://eprints.soton.ac.uk/id/eprint/64207

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