Bid-Price Controls for Network Revenue Management: Martingale Characterization of Optimal Bid Prices

We consider a continuous-time, rate-based model of network revenue management. Under mild assumptions, we construct a simple -optimal bid-price control, which can be viewed as a perturbation of a bid-price control in the classical sense [Williamson, E. L. 1992. Airline network seat control. Ph.D. th...

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Bibliographic Details
Published in:Mathematics of operations research Vol. 34; no. 4; pp. 912 - 936
Main Authors: Akan, Mustafa, Ata, Baris
Format: Journal Article
Language:English
Published: Linthicum INFORMS 01.11.2009
Institute for Operations Research and the Management Sciences
Subjects:
Analysis
Bid prices
bid-price controls
Bids
Cost control
Integrands
Martingales
Mathematical functions
Mathematical theorems
Mathematical vectors
network revenue management
Operations research
Optimal solutions
Portfolio management
Price regulations
Pricing
Revenue
Revenue management
Stochastic models
Studies
Trajectories
United States
ISSN:0364-765X, 1526-5471
Online Access:Get full text
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Summary:We consider a continuous-time, rate-based model of network revenue management. Under mild assumptions, we construct a simple -optimal bid-price control, which can be viewed as a perturbation of a bid-price control in the classical sense [Williamson, E. L. 1992. Airline network seat control. Ph.D. thesis, MIT, Cambridge, MA]. We show that the associated bid-price process forms a martingale and the corresponding booking controls converge in an appropriate sense to an optimal control as tends to 0. Moreover, we show that there exists an optimal generalized bid-price control, where the bid-price process forms a martingale and is used in conjunction with a capacity usage limit process. We also discuss its connection to the bid-price controls in the classical sense and sufficient conditions for the (near) optimality of the latter.
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ISSN:0364-765X
1526-5471
DOI:10.1287/moor.1090.0411