Revenue management of callable products
Coauthor(s): Guillermo Gallego, Shing-Gang Kou.
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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
Gallego, Guillermo, S. G. Kou, and Robert Phillips. "Revenue management of callable products." Management Science 54, no. 3 (March 2008): 550-564.