Competition in Revenue Management
Investigate the impact of price competition on the optimal prices to be charged for perishable products, e.g. airline seats. Competition has a huge influence on customer buying behaviour and will impact on the optimal price that companies should charge for goods or services. We consider situations where a company is selling an inventory of identical items by a fixed time and there is one competing seller, e.g. airline tickets, hotel rooms. What prices should be set over the selling period to maximise revenue? We have set up a probabilistic model of customer demand, which is influenced by the prices offered by the company and the competitor, and the time left until the end of the selling period. We have also used calculus of variations to maximise revenue subject to capacity constraints. The work was implemented by a major UK airline to help maximise revenue on its short-haul routes.
