Maximum Utility Product Pricing Models and Algorithms Based on Reservation Prices

Romy Shioda(rshiodauwaterloo.ca)
Levent Tuncel(ltunceluwaterloo.ca)
Tor Myklebust(tmyklebucsclub.uwaterloo.ca)

Abstract: We consider a revenue management model for pricing a product line with several customer segments under the assumption that customers' product choices are determined entirely by their reservation prices. We highlight key mathematical properties of the maximum utility model and formulate it as a mixed-integer programming problem, design heuristics and valid cuts. We further present extensions of the models to deal with various practical issues arising in applications. Our computational experiments with real data from the tourism sector as well as with the randomly generated data show the effectiveness of our approach.

Keywords: revenue management, mixed-integer programming, product pricing

Category 1: Applications -- OR and Management Sciences

Citation: C&O Research Report, University of Waterloo, Waterloo, ON, N2L3G1, Canada, April 2007

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Entry Submitted: 04/16/2007
Entry Accepted: 04/16/2007
Entry Last Modified: 04/16/2007

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