Network Revenue Management Under a Spiked Multinomial Logit Choice Model

Abstract

Customers are sensitive to price when they shop from a group of substitutable products. Specifically, they are often attracted to the cheapest product in the group, even when the price difference to the next cheapest product is small. Such a phenomenon has been long noticed by the airline industry when customers purchase airline tickets. In “Network Revenue Management under a Spiked Multinomial Logit Choice Model,” Cao, Kleywegt, and Wang consider a new choice model to incorporate customers’ preference toward the cheapest product, which extends the popular multinomial logit choice model. They find that using this new choice model may improve airlines’ revenue. Moreover, (near) optimal revenue management policies under this choice model can be computed in an efficient manner.