Competitive analysis of online revenue management with two hierarchical resources and multiple fare classes

Abstract

Resource allocation problem is one of key issues in the field of revenue management. The traditional models usually rely on some restrictive assumptions about demand information or arrival process, which is sometimes out of line with reality. To overcome this shortcoming, the method of competitive analysis of online algorithms, which eliminates the need for the assumptions on demand and arrivals, is adopted to deal with the quantity-based revenue management problem. The current model in this paper considers two downgrade compatible levels of resources. Given the capacities and fares of both levels of resources, the objective is to accept appropriate customers and assign them to appropriate resources so as to maximize revenues. Compared with the existing literature, this paper generalizes the concerned resource allocation problem by considering multiple fares for each level of resources. From the perspective of online algorithms and competitive analysis, both an upper bound and an optimal online strategy are derived in this paper.