Relationships Among Three Assumptions in Revenue Management

Operations ResearchPublished 20 September 2004

Serhan Ziya, Hayriye Ayhan, Robert D. Foley

DOI10.1287/opre.1040.0134

Source URL

Citations132

SJR quartileQ1

SJR score2.56

SNIP1.83

TL;DR

This note discusses the relationships among three assumptions that appear frequently in the pricing/revenue management literature, and provides proofs and examples to show that none of these conditions implies any other.

Abstract

This note discusses the relationships among three assumptions that appear frequently in the pricing/revenue management literature. These assumptions are mostly needed for analytical tractability, and they have the common property of ensuring a well-behaved “revenue function.” The three assumptions are decreasing marginal revenue with respect to demand, decreasing marginal revenue with respect to price, and increasing price elasticity of demand. We provide proofs and examples to show that none of these conditions implies any other. However, they can be ordered from strongest to weakest over restricted regions, and the ordering depends upon the region.

Keywords

Decision SciencesBusiness, Management and Accounting

Management ScienceOptimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons

1,601 Citations1994Guillermo Gallego, Garrett van Ryzin

Manufacturing & Service Operations ManagementSelling to the Newsvendor: An Analysis of Price-Only Contracts

1,079 Citations2001Martin A. Lariviere, Evan L. Porteus

A mild restriction satisfied by many common distributions is developed that assures that the manufacturer's problem is readily amenable to analysis, and factors that may lead the manufacturer to set a wholesale price below that which would maximize her profit are explored.

Management ScienceContracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain

1,051 Citations2001Gérard P. Cachon, Martin A. Lariviere

Contracts that allow the supply chain to share demand forecasts credibly under either compliance regime are studied.

Journal of Political EconomyThe Simple Economics of Optimal Auctions

619 Citations1989Jeremy Bulow, John Roberts

Management SciencePeriodic Pricing of Seasonal Products in Retailing

421 Citations1997Gabriel R. Bitran, Susana Mondschein

IEEE/ACM Transactions on NetworkingCongestion-dependent pricing of network services

354 Citations2000Ioannis Ch. Paschalidis, John N. Tsitsiklis

It is shown analytically and computationally, that the performance of an optimal pricing strategy is closely matched by a suitably chosen static price, which does not depend on instantaneous congestion, which indicates that the easily implementable time-of-day pricing will often suffice.

American Mathematical MonthlyCalculus and Analytic Geometry.

232 Citations1983Peter Rosenthal, C. H. Edwards +1 more

A leaner, crisper, more accessible edition (according to the preface), for the widening range of students who need knowledge of the basic concepts.

European Journal of Operational ResearchOptimal dynamic pricing of perishable products with stochastic demand and a finite set of prices

136 Citations2000Richard E. Chatwin

This paper considers a continuous-time inventory problem in which a retailer sets the price on a fixed number of a perishable asset that must be sold prior to the time at which it perishes, and the case in which the retailer can restock to meet demand at a unit cost after the initial inventory has been sold.

European Journal of Operational ResearchOptimal pricing and production in an inventory model

89 Citations1985Gustav Feichtinger, Richard F. Hartl

Mathematics of Operations ResearchA Stochastic Theory of the Firm

83 Citations1988Lode Li

A stochastic model of make-to-stock firms based on a buffer flow system with jumps based on two Poisson counting processes with random intensities parameterized by production capacity and price is presented.

View PDF