Abstract
In this paper, we consider the case that the consumers may cancel their reservations during the booking period so that consumers are divided into two parts: cancellation request and booking request. Simultaneously, we assume that consumers act strategically in booking products. Upon receiving the request, the firm has to decide whether to accept the cancellation request and what fees to charge the booking request in the presence of strategic consumers. We propose optimal price strategy and show the effectiveness of the decision models. We also obtain the optimal control of cancellation demands policy which is achieved by the number of remaining inventory. Numerical experiments are presented to explore the effect of various parameters on the performance of optimal strategy.
Highlights
In revenue management, the fundamental problem is the decision to find the optimal price or inventory level in order to maximize total revenue
The reason is intuitive, a large λ1 means the probability of cancellation request is large, there will be fewer cancellation inventory retained for those consumers in order to gain more profit trough dynamic pricing
By building multiperiod dynamic programming model, we obtained the price relation which meet to strategic consumers
Summary
The fundamental problem is the decision to find the optimal price or inventory level in order to maximize total revenue. This approach reduces the likelihood of being left with much unsold inventory, it may lead to a difficult situation when the number of reservations exceeds the available inventory at the time of delivery. In such cases, the firm will lose the consumer and damage the firm’s reputation. Because the optimal policy is often difficult to find analytically, in many cases the authors first establish structural properties of the optimal policy, and develop an algorithm to compute or to approximate it These papers assume that consumers cannot cancel their reservations after purchasing.
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