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Toward Robust Revenue Management: Competitive Analysis of Online Booking

Robert H. Smith School of Business and Institute for Systems Research, University of Maryland, College Park, Maryland 20742
Sauder School of Business, University of British Columbia, Vancouver, British Columbia, Canada V6T 1Z2
mball{at}rhsmith.umd.edu
maurice.queyranne{at}sauder.ubc.ca

In this paper, we consider the revenue management problem from the perspective of online algorithms. This approach eliminates the need for both demand forecasts and a risk-neutrality assumption. The competitive ratio of a policy relative to a given input sequence is the ratio of the policy's performance to the offline optimal. Under the online algorithm approach, revenue management policies are evaluated based on the highest competitive ratio they can guarantee. We are able to define lower bounds on the best-possible performance and describe policies that achieve these lower bounds. We address the two-fare problem in greatest detail, but also treat the general multifare problem and the bid-price control problem.

Subject classifications: analysis of algorithms; suboptimal algorithms; inventory/production; policies; marketing/pricing.
History: Received March 2006; revision received January 2008; accepted June 2008.

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