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