On the origin-destination demands linear programming model for network revenue management with customer choice

Abstract

In this study, we research the problem of network revenue management with customer choice based on the Origin-Destination (O-D) demands. By dividing customers into different segments according to O-D pairs, we consider a network capacity control problem where each customer chooses the open product within the segment he belongs to. Starting with a Markov Decision Process (MDP) formulation, we approximate the value function with an affine function of the state vector. The affine function approximation results in a new Linear Program (LP) which yields tighter bounds than the Choice-based Deterministic Linear Program (CDLP). We give a column generation procedure for solving the LP within a desired optimality tolerance and present numerical results which show the policy perform from our solution approach can outperform that from the CDLP. © Maxwell Scientific Organization, 2013.