Abstract
We explore the impact of changes in market conditions on optimal allocation decisions and revenues, within the standard two-class revenue management framework, using stochastic dominance relations. We show that an increase in market size leads to higher revenues, and the number of units allocated to the high-end class increases in its market size. The direction of the change in optimal allocation and revenues in response to changes in the variability of the high-end market depends on the relationship between the high and lowend prices. Our structural and numerical results suggest higher variability in the market is generally detrimental to revenues.
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