Dynamic Pricing and Allocation Models for Revenue Management in the Airline and Retail Industries

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9309394 Gallego Many important U.S. industries incur high fixed costs to provide goods or services. These include the transportation (airlines, cruise ships), lodging (hotels, resorts), fashion, and seasonal manufacturing and retailing industries. Because of long lead times capacity can be considered fixed, at least in the short run, and its cost sunk. The relatively low marginal costs of providing goods or services within capacity makes revenue maximization a main concern for these industries. Effective temporal pricing and allocation decisions can significantly increase revenues in these industries and hence strengthen their competitive positions. At present there is a wealth of reservation and point-of-sale data which can be used to make temporal pricing and allocation decisions. The goal of this research is to develop theoretical and practical temporal pricing and allocation methods that take full advantage of these data. This research develops modeling techniques and algorithms that capture realistic and complex multiple product problems. The framework will ultimately be capable of handling extremely complicated problems such as pricing and allocating the capacity of an entire airline carrier network over multiple markets. Also planned is a study of joint pricing, allocation, and demand estimation, an essential building block for the future implementation of the research. Toward this end, an initial program of empirical studies in conjunction with a major fashion retailer is also proposed to secure financial and in-kind support from both the retail and airline industry for continued funding of the research. ***