Revenue Management of Callable Products

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

• Type: Journal
• Year: 2008
• Where: MANSCI
• Authors: Guillermo Gallego, S. G. Kou, Robert Phillips
• Keywords: Callable Products, MANSCI 2008, Pre-specified Recall Price, Recall Price