A stochastic approximation algorithm to compute bid prices for joint capacity allocation and overbooking over an airline network

Kunnumkal, S and Topaloglu, H (2011) A stochastic approximation algorithm to compute bid prices for joint capacity allocation and overbooking over an airline network. Naval Research Logistics, 58 (4). pp. 323-343.

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Abstract

In this article, we develop a stochastic approximation algorithm to find good bid price policies for the joint capacity allocation and overbooking problem over an airline network. Our approach is based on visualizing the total expected profit as a function of the bid prices and searching for a good set of bid prices by using the stochastic gradients of the total expected profit function. We show that the total expected profit function that we use is differentiable with respect to the bid prices and derive a simple expression that can be used to compute its stochastic gradients. We show that the iterates of our stochastic approximation algorithm converge to a stationary point of the total expected profit function with probability 1. Our computational experiments indicate that the bid prices computed by our approach perform significantly better than those computed by standard benchmark strategies and the performance of our approach is relatively insensitive to the frequency with which we recompute the bid prices over the planning horizon.

ISB Creators:
ISB CreatorsORCiD
Kunnumkal, SUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: overbooking; revenue management; stochastic approximation
Subjects: Operations Management
Depositing User: Users 7 not found.
Date Deposited: 13 Nov 2014 07:54
Last Modified: 13 Nov 2014 07:54
URI: http://eprints.exchange.isb.edu/id/eprint/246
Publisher URL: http://dx.doi.org/10.1002/nav.20448
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