Guillermo Gallego

Revenue management of callable products

Coauthor(s): Shing-Gang Kou, Robert Phillips. View Publication

Abstract:
A callable product is a unit of capacity sold to self-selected low-fare customers who willingly grant the capacity provider the option to "call" the capacity at a prespecified recall price. We analyze callable products in a finite-capacity setting with two fare classes where low-fare customers book first, and show that callable products provide a riskless source of additional revenue to the capacity provider. An optimal recall price and an optimal discount-fare booking limit for the two-period problem are obtained. Numerical examples show the benefits from offering callable products can be significant, especially when high-fare demand uncertainty is large. Extensions to multifare structures, network models, overbooking, and to other industries are discussed.

Source: Management Science
Exact Citation:
Gallego, Guillermo, S. G. Kou, and Robert Phillips. "Revenue management of callable products." Management Science 54, no. 3 (March 2008): 550-564.
Volume: 54
Number: 3
Pages: 550-564
Date: 3 2008