Dynamic Price Competition with Fixed Capacities

Many revenue management (RM) industries are characterized by (a) fixed capacities in the short term (e.g., hotel rooms, seats on an airline flight), (b) homogeneous products (e.g., two airline flights between the same cities at similar times), and (c) customer purchasing decisions largely influenced by price. Competition in these industries is also very high even with just two or three direct competitors in a market. However, RM competition is not well understood and practically all known implementations of RM software and most published models of RM do not explicitly model competition. For this reason, there has been considerable recent interest and research activity to understand RM competition. In this paper we study price competition for an oligopoly in a dynamic setting, where each of the sellers has a fixed number of units available for sale over a fixed number of periods. Demand is stochastic, and depending on how it evolves, sellers may change their prices at any time. T...

• Type: Journal
• Year: 2011
• Where: MANSCI
• Authors: Victor Martínez-de-Albéniz, Kalyan T. Talluri
• Keywords: Bertrand Competition, Communications, Comparative Statics, Competitor Prices, MANSCI 2011