Assessing the Value of Dynamic Pricing in Network Revenue Management

Dynamic pricing for a network of resources over a finite selling horizon has received consid-erable attention in recent years, yet few papers provide effective computational approaches to solve the problem. We consider a resource decomposition approach to solve the problem and investigate the performance of the approach in a computational study. We compare the performance of the approach to static pricing and choice-based availability control. Our numerical results show that dynamic pricing policies from network resource decomposition can achieve significant revenue lift compared with choice-based availability control and static pricing, even when the latter is frequently resolved. As a by-product of our approach, net-work decomposition provides an upper bound in revenue, which is provably tighter than the well-known upper bound from a deterministic approximation. Key words: revenue management; dynamic pricing; approximate dynamic programming; choice model