2016 INFORMS Annual Meeting Program

MC46

INFORMS Nashville – 2016

MC47 209C-MCC New Revenue Management Practices in Airline and Hotel Industries Sponsored: Revenue Management & Pricing Sponsored Session Chair: Ovunc Yilmaz, University of South Carolina, Columbia, SC, United States, oyilmaz@email.sc.edu Co-Chair: Mark Ferguson, University of South Carolina, Columbia, SC, Zhi-Long Chen, University of Maryland, Robert H Smith School of Business, Dept of Decision, Operations & Info Tech, College Park, MD, 20742-1815, United States, zchen@rhsmith.umd.edu Ming Chen We study a relatively new revenue management practice frequently seen in the airlines industry where customers have the option to lock a fare at a small fee for a certain period of time. The free 24 hour cancellation policy enforced by DOT can be viewed as a special case of this problem. This provides a valuable option for those undecided travelers when finalizing their travel plans. We investigate the implications of such practice on both the airlines and the passengers, as well as the resulting pricing policies. 2 - You Are Eligible For An Upgrade: A Critical Look At Hotel Standby Upgrades Ovunc Yilmaz, PhD Student, University of South Carolina, Columbia, SC, United States, oyilmaz@email.sc.edu Mark Ferguson, Pelin Pekgun Standby upgrades, where the guest is only charged if the upgrade is available at the time of arrival, is one technique that has become increasingly popular in the hotel industry. Working on a data set from a major hotel chain, we analyze the guest decision-making process for these upgrades. 3 - The Rise Of The Sharing Economy: Estimating The Impact Of Air BnB On The Hotel Industry Davide Proserpio, Boston University, dproserp@cs.bu.edu In this paper we study Air BnB and its entry into the short-term accommodation market in Texas. We first explore Air BnB’s impact on hotel room revenue, and show that in Austin, where Air BnB supply is highest, the impact on hotel revenue is in the 8-10% range; moreover, the impact is non-uniformly distributed, with lower-priced hotels and those hotels not catering to business travelers being the most affected. We then examine seasonal effects and provide evidence that the flexibility of Airbnb supply impacts hotels disproportionately during high season, limiting their pricing power. 4 - Price Volatility And Market Performance Measure: United States, mark.ferguson@moore.sc.edu 1 - Dynamic Pricing With A Fare-lock Option

4 - Leveraging The Common Input Data In Comparisons Of Systems Under Input Uncertainty Eunhye Song, Northwestern University, Evanston, IL, United States, eunhyesong2016@u.northwestern.edu, Barry L Nelson This talk focuses on a discrete optimization via simulation problem when all systems share the same input models estimated from common input data. Standard methods that are conditional on the estimated input models may not provide the target correct-selection inference, exposing the user to unmeasured model risk. We define the common-input-data (CID) effect as the joint impact of input uncertainty due to the common distribution on each system’s outputs. The proposed procedure incorporates input uncertainty by leveraging the CID effect and is proven to provide the desired inference asymptotically under mild conditions.

MC46 209B-MCC Revenue Management in e-Commerce Sponsored: Revenue Management & Pricing Sponsored Session

Chair: Joline Uichanco, University of Michigan, Ross School of Business, Ann Arbor, MI, United States, jolineu@umich.edu 1 - Minimum Advertised Pricing Policy: An Economic Analysis Ozge Sahin, Johns Hopkins University, ozge.sahin@jhu.edu Liang Ding, Roman Kapuscinski During last twenty years, many brick-and-mortar retailers face competition from online retailers and local discounters. Customers are able to experience products in a brick-and-mortar store but purchase online for lower prices. As a result, brick-and-mortar retailers’ sales decrease and they stop promoting or carrying such products. For manufacturers, however, brick-and-mortar retailers play a crucial role by showcasing and advertising products to customers. In this paper, we build a stylized model to study and compare the performance of common price restraining policies. 2 - Omni-channel Revenue Management Through Pricing And Fulfillment Planning Joline Uichanco, University of Michigan, Ann Arbor, MI, United States, jolineu@umich.edu Pavithra Harsha, Shivaram Subramanian In an omni-channel environment, inventory is shared across channels through multiple fulfillment options. We present a tractable optimization model to determine optimal lifecycle channel prices, inventory allocations and partitions across channels that maximizes the total chain level profit. This solution was tested in a production pilot setting and demonstrated a 6% increase in markdown revenue over current practices across the categories analyzed. 3 - Cash-on-delivery In Emerging Markets: An Empirical Study Richard Zhiji Xu, Kellogg School of Management, Northwestern University, Evanston, IL, United States, zhiji-xu@kellogg.northwestern.edu, Antonio Moreno-Garcia, Chaithanya Bandi Cash-on-delivery (COD), the payment method where customers pay for the products in cash at the time of delivery, is widely used in online retailing in developing countries. Using a unique data set from a leading online fashion retailer in India, we study the impacts of COD on pricing strategies, firm revenue, and other operational consequences. 4 - Inventory Optimization For Fulfillment Integration In Omnichannel Retailing Aravind Govindarajan, University of Michigan, 701 Tappan Street, Ann Arbor, MI, 48109, United States, arav@umich.edu, Amitabh Sinha, Joline Uichanco Omnichannel refers to the seamless integration of a retailer’s channels such as brick-and-mortar and e-commerce. Using analytical models, we study three basic omnichannel fulfillment models varying in the level of integration between in- store and online demands. We obtain optimal order-up-to quantities for the single period, two-store problem, and extend our analyses to the multi-store setting, developing an asymptotically optimal heuristic which provides significant cost savings over current practice. We then numerically study the effects of cost and demand parameters on the choice of fulfillment structures. Finally, we discuss extensions to the multi-period setting under lost sales.

The Case Of Revenue Managed Goods Benny Mantin, University of Waterloo, benny.mantin@uwaterloo.ca, Eran Rubin

The airline industry has embraced revenue management practices which are manifested through frequent updates to posted airfares. When shopping for the lowest available fare, consumers are exposed to volatile prices. Different routes exhibit substantially different volatility levels of the lowest available fare. We quantify the relation between these volatility levels and performance metrics such as sales and revenue at the route level using US domestic aviation markets.

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