Dynamic pricing & capacity assignment problem with cancellation and mark-up policies in airlines

Revenue management has started on the capacity control by booking classes for available seats, and has been recognized as a powerful tool to maximize the total revenue. Among various RM techniques, pricing and seat controls have played key roles in airlines. Since pricing and seat control problems are highly correlated in RM problem. These two decision problems need to be considered jointly. However, due to the complex interaction between them, a few researches focus on the joint pricing and seat control problem. In this paper we consider a comprehensive problem including a cancellation in booking processes and a mark-up policy in pricing strategy under uncertain demands. To manage the demand uncertainty efficiently, we applied a linear approximation technique and proposed a new approximation model, a simple mixed Integer Programming model. From the computational experiments with randomly generated data, we can find our model makes good performance for deciding pricing and seat controls simultaneously.