Revenue Management of Callable Products

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Revenue Management of Callable Products
We introduce callable products into a finite-capacity, two-period sales or booking process where low-fare customers book first. A callable product is a unit of capacity sold at the low fare to self-selected buyers who willingly grant the capacity provider the option to "call" the capacity at a pre-specified recall price. Callable products provide a riskless source of additional revenue to the capacity provider. We calculate an optimal recall price and discount-fare booking limit for the two-period case and illustrate through a numerical study how the benefits from offering callable products can be significant, especially when high-fare demand uncertainty is large. Extensions to multi-fare structures, network models, overbooking and to other industries are discussed. Key Words: Revenue Management, Product Design, Overbooking, Capacity Allocation
Guillermo Gallego, S. G. Kou, Robert Phillips
Added 13 Dec 2010
Updated 13 Dec 2010
Type Journal
Year 2008
Authors Guillermo Gallego, S. G. Kou, Robert Phillips
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