Robust pricing for airlines with partial information

In the spot market for air cargo, airlines typically adopt dynamic pricing to tackle demand uncertainty, for which it is difficult to accurately estimate the distribution. This study addresses the problem where a dominant airline dynamically sets prices to sell its capacities within a two-phase sale...

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Vydáno v:Annals of operations research Ročník 310; číslo 1; s. 49 - 87
Hlavní autoři: Feng, Bo, Zhao, Jixin, Jiang, Zheyu
Médium: Journal Article
Jazyk:angličtina
Vydáno: New York Springer US 01.03.2022
Springer
Springer Nature B.V
Témata:
Air cargo
Airlines
Algorithms
Analysis
Business and Management
Combinatorics
Demand
Growth rate
Lower bounds
Mathematical analysis
Methods
Numerical analysis
Operations research
Operations Research/Decision Theory
Optimization
Polynomials
Prices and rates
Pricing
Robustness (mathematics)
S.i.: Mim2019
Spot market
Stochastic programming
Supply chains
Theory of Computation
China
Robust pricing
Partial information
Distributional robust stochastic programming
Air cargo
ISSN:0254-5330, 1572-9338
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Popis
Shrnutí:In the spot market for air cargo, airlines typically adopt dynamic pricing to tackle demand uncertainty, for which it is difficult to accurately estimate the distribution. This study addresses the problem where a dominant airline dynamically sets prices to sell its capacities within a two-phase sales period with only partial information. That partial information may show as the moments (upper and lower bounds and mean) and the median of the demand distribution. We model the problem of dynamic pricing as a distributional robust stochastic programming, which minimizes the expected regret value under the worst-case distribution in the presence of partial information. We further reformulate the proposed non-convex model to show that the closed-form formulae of the second-stage maximal expected regret are well-structured. We also design an efficient algorithm to characterize robust pricing strategies in a polynomial-sized running time. Using numerical analysis, we present several useful managerial insights for airline managers to strategically collect demand information and make prices for their capacities in different market situations. Moreover, we verify that additional information will not compromise the viability of the pricing strategies being implemented. Therefore, the method we present in this paper is easier for airlines to use.
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ISSN:0254-5330
1572-9338
DOI:10.1007/s10479-020-03926-9