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Using Lagrangian Relaxation to Compute Capacity-Dependent Bid Prices in Network Revenue Management
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Using Lagrangian Relaxation to Compute Capacity-Dependent Bid Prices in Network Revenue Management
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Journal Article
Using Lagrangian Relaxation to Compute Capacity-Dependent Bid Prices in Network Revenue Management
2009
Overview
We propose a new method to compute bid prices in network revenue management problems. The novel aspect of our method is that it explicitly considers the temporal dynamics of the arrivals of the itinerary requests and generates bid prices that depend on the remaining leg capacities. Our method is based on relaxing certain constraints that link the decisions for different flight legs by associating Lagrange multipliers with them. In this case, the network revenue management problem decomposes by the flight legs, and we can concentrate on one flight leg at a time. When compared with the so-called deterministic linear program, we show that our method provides a tighter upper bound on the optimal objective value of the network revenue management problem. Computational experiments indicate that the bid prices obtained by our method perform significantly better than the ones obtained by standard benchmark methods.
Publisher
INFORMS,Institute for Operations Research and the Management Sciences
Subject
Air transportation and traffic
/ Analysis
/ dynamic programming/optimal control
/ Exact sciences and technology
/ Ground, air and sea transportation, marine construction
/ Matrices
/ Operational research and scientific management
/ Operational research. Management science
/ Pricing
/ Revenue
/ stochastic model applications
/ Studies
