This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via Google Scholar Google Scholar Articles by Akan, M. Articles by Ata, B. Search for Related Content

Bid-Price Controls for Network Revenue Management: Martingale Characterization of Optimal Bid Prices

Mustafa Akan, Bar Ata

Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213
Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
akan{at}cmu.edu, http://public.tepper.cmu.edu/facultydirectory/facultydirectoryprofile.aspx?id=286
b-ata{at}kellogg.northwestern.edu, http://www.kellogg.northwestern.edu/faculty/ata/personal

We consider a continuous-time, rate-based model of network revenue management. Under mild assumptions, we construct a simple -optimal bid-price control, which can be viewed as a perturbation of a bid-price control in the classical sense [Williamson, E. L. 1992. Airline network seat control. Ph.D. thesis, MIT, Cambridge, MA]. We show that the associated bid-price process forms a martingale and the corresponding booking controls converge in an appropriate sense to an optimal control as tends to 0. Moreover, we show that there exists an optimal generalized bid-price control, where the bid-price process forms a martingale and is used in conjunction with a capacity usage limit process. We also discuss its connection to the bid-price controls in the classical sense and sufficient conditions for the (near) optimality of the latter.

Key Words: bid-price controls; network revenue management; martingales
History: Received: January 20, 2007; revision received: January 14, 2009;