A Welfare Assessment of Revenue Management Systems

Abstract

We study the welfare impact of revenue management, a practice which is widely spread in the transport industry, but whose impact on consumer surplus remains unclear. We develop a theoretical model of revenue management allowing for heterogeneity in product characteristics, capacity constraints, consumer preferences, and probabilities of arrival. We also introduce dynamic competition between revenue managers. We solve this model computationally and recover the optimal pricing strategies. We find that revenue management is generally welfare enhancing as it raises the number of sales.

Reference

Nicolas Dupuis, Marc Ivaldi, and Jérôme Pouyet, “A Welfare Assessment of Revenue Management Systems”, The Review of Network Economics, vol. 19, n. 1, March 2020, pp. 1–41.