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## Pricing perishable inventories by using marketing restrictions with applications to airlines

This thesis addresses the problem of pricing perishable inventories such as airline seats

and hotel rooms. It also analyzes the airline seat allocation problem when two airlines

compete on a single-leg flight. Finally, several existing models for seat allocation with

multiple fares on a single-leg flight are compared.

The pricing framework is consistent with modern yield management tools which utilize restrictions such as weekend stayover to segment the market. One model analyzed

considers a restriction which is irrelevant to one set of consumers, but which the others

find so onerous that they will not purchase a restricted ticket at any price. If the consumers who do not mind the restriction are less price sensitive than those who find the

restriction onerous, then the thesis shows that there is an optimal policy for a monopolist

which will sell fares at no more than three price levels.

When two restrictions are allowed in the model, if one is more onerous than the other

in the sense that the set of consumers who would not buy a ticket with the first restriction

is a subset of those who would not buy it with the second restriction, then the restrictions

are said to be nested. If the sets of consumers who would not buy tickets with the first

restriction is disjoint from those who would not buy with the second restriction, then

the restrictions are said to be mutually exclusive. If two restrictions are either nested or

mutually exclusive, then a monopolist needs at most four price levels with three types (i.e.

combinations of restrictions) of product. With two general restrictions, the monopolist

may need five price levels with four types of product.

The pricing model is applied to restrictions which are based on membership in a

particular organization. For example, employees of an airline are frequently eligible

for special fares. Some airlines provide special fares for government employees or for

employees of certain corporations. An analysis is given to help airlines understand the

costs and benefits of such arrangements.

A model of two airlines competing on a single-leg flight is developed for the case

where the airlines have fixed capacity and fixed price levels for two types of fares-full and discount. The airlines compete by controlling the number of discount fares

which they sell. The split of the market between the airlines is modelled in two different

ways. First, the airlines might share the market for a fare class proportionally to their

allocation of seats to that fare class. In this case, under certain conditions, there exists

an equilibrium pair of booking limits for the discount fare such that each airline will

protect the same number of seats for the full fare customers, even when the demands are

random and stochastically dependent. The second market sharing model assumes that

the two airlines share the market demand equally. In this case, when the demands are

deterministic, then there is an equilibrium solution where each airline will protect enough

seats to split equally the market for the full fares.

Finally, three existing seat allocation models for multi-fare single-leg flights with

stochastically independent demands are compared. It is shown that the optimality conditions for each of these models are analytically equivalent, thus providing a unified

approach to this problem. / Business, Sauder School of / Graduate

Identifer | oai:union.ndltd.org:UBC/oai:circle.library.ubc.ca:2429/6889 |

Date | 05 1900 |

Creators | Li, Michael Zhi-Feng |

Source Sets | University of British Columbia |

Language | English |

Detected Language | English |

Type | Text, Thesis/Dissertation |

Format | 3949887 bytes, application/pdf |

Rights | For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use. |

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