KEYWORDS: revenue management, competitionIn a marketplace with many service providers offering the same or similar products, demand is largely driven by competition. This competitive aspect, however, is not considered explicitly in most existing revenue management (RM) approaches. This paper introduces a new approach that uses a recently developed demand model and competitive price information. A simulation study was conducted to compare the performance of this new approach and several other approaches. Our results lead to several observations and insights into the performance of different approaches and show that incorporating competitive data into RM is a promising direction.
INTRODUCTIONCompetition is often the most significant demand driver nowadays in a marketplace with many service providers offering the same or similar products. With the rapid development of the internet, customers can compare prices of different service providers at a mouse click. A significant portion of customers make a purchase from the provider that offers the lowest price. This type of purchase behaviour is confirmed by many revenue management (RM) analysts in the service industry.Most demand models that are used in existing RM systems do not explicitly consider price-driven demand in the presence of competition. Two types of demand models are widely used: yieldable demand and priceable demand. Traditionally, customers are assumed to belong to different 'classes' where customers from each class only requests a specific product. We say such demand is yieldable. Models based on yieldable demand models form the basis of what is currently used in many RM systems. Another type of demand model assumes that customers have different willingness-to-pay
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