Market structure and the value of overselling under stochastic demands

In the operations management literature, traditional revenue management focused on pricing and capacity allocation strategies in a two-period model with stochastic demand. Inspired by travel and lodging industries, we examine a two-period model in which each seller may also adopt the overselling strategy to customers whose valuations are differentiated by timing of arrivals. Widely seen as a popular hedge against consumers’ skipping reservations, we extend the stylized approaches of Biyalogorsky, Carmon, Fruchter, and Gerstner (1999) and Lim (2009) to understand the value of overselling under various market structures. We find that contrary to existing literature, the impact of period-two pricing competition from overselling spills over to period-one such that overselling may not always be a (weakly) dominant strategy once unlimited early demand ceases to hold in a duopoly regime. We provide some numerical studies on the existence of multiple equilibria at the capacity allocation level which actually lead to different selling strategies at the equilibrium despite identical market conditions and firm characteristics

airline revenue management

With the increasing interest in decision support systems and the continuous advance of computer science, revenue management is a discipline which has received a great deal of interest in recent years. Although revenue management has seen many new applications throughout the years, the main focus of research continues to be the airline industry. Ever since Littlewood (1972) first proposed a solution method for the airline revenue management problem, a variety of solution methods have been introduced. In this paper we will give an overview of the solution methods presented throughout the literature