Allocation of flexible and indivisible resources with decision postponement and demand learning

Abstract

We consider a firm that uses two perishable resources to satisfy two demand types. Resources are flexible such that each resource can be used to satisfy either demand type. Resources are also indivisible such that the entire resource must be allocated to the same demand type. This type of resource flexibility can be found in different applications such as movie theater complexes, cruise lines, and airlines. In our model, customers arrive according to independent Poisson processes, but the arrival rates are uncertain. Thus, the manager can learn about customer arrival rates from earlier demand figures and potentially increase the sales by postponing the resource allocation decision. We consider two settings, and derive the optimal resource allocation policy for one setting and develop a heuristic policy for the other. Our analysis provides managerial insights into the effectiveness of different resource allocation mechanisms for flexible and indivisible resources.