Dynamic pricing of airline tickets with competition
Dynamic pricing of airline tickets with competition
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.
yield management, revenue management, competition, dynamic pricing, air transport
1026-1037
Currie, C.S.M.
dcfd0972-1b42-4fac-8a67-0258cfdeb55a
Cheng, R.C.H.
a4296b4e-7693-4e5f-b3d5-27b617bb9d67
Smith, H.K.
1eaef6a6-4b9c-4997-9163-137b956c06b5
August 2008
Currie, C.S.M.
dcfd0972-1b42-4fac-8a67-0258cfdeb55a
Cheng, R.C.H.
a4296b4e-7693-4e5f-b3d5-27b617bb9d67
Smith, H.K.
1eaef6a6-4b9c-4997-9163-137b956c06b5
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), .
(doi:10.1057/palgrave.jors.2602425).
Abstract
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.
This record has no associated files available for download.
More information
e-pub ahead of print date: 23 May 2007
Published date: August 2008
Keywords:
yield management, revenue management, competition, dynamic pricing, air transport
Organisations:
Operational Research
Identifiers
Local EPrints ID: 64207
URI: http://eprints.soton.ac.uk/id/eprint/64207
ISSN: 0160-5682
PURE UUID: b5fc06cb-99bc-4b6a-9c9a-6de6a94c2d52
Catalogue record
Date deposited: 13 Jan 2009
Last modified: 16 Mar 2024 03:46
Export record
Altmetrics
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics
