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Customer-Choice Behaviour
For example,
the likelihood of selling a full-fare ticket may very well depend
on whether a discount fare is available at the same time
and
the likelihood that a customer buys at all may depend on the
lowest available fare.
Customer-Choice Models
Customer-Choice Behaviour
where the left (right) hand side is the (expected) return for
accepting (rejecting) the request of class 2 when the remaining
available capacity is x.
≥ p1 P(D1 ≥ x).
The right hand side of the modified rule is greater than the right
hand side in Littlewood’s rule, which means that the modified
rule is more likely to reject class 2 demand.
Remark.
The difficulty with the modification of Littlewood’s rule to
incorporate buy-up factor is that
j
X
pj+1 = qj+1 p̂j+1 + (1 − qj+1 )p̄j P( Dk ≥ yj ),
k =1
where
then qj+1 p̂j+1 on the right hand side of the inequality could be
replaced with
k
X
qj+1,k pk .
j=1
Customer-Choice Models
Customer-Choice Models
In each period, there is at most one arrival.
The probability of arrival, λ, is assumed to be the same for
all time periods (for ease of exposition).
N = {1, ..., n} is the entire set of classes.
p1 ≥ p2 ≥ ... ≥ pn .
p0 = 0 denotes the revenue of the no-purchase choice.
In each period t, the seller chooses a subset St ⊆ N of
classes to offer.
When the set of classes St is offered in period t,
the probability that a customer chooses class j ∈ St is
denoted by Pj (St ).
P0 (St ) is the no-purchase probability.
Customer-Choice Models
X
P0 (S) + Pj (S) = 1.
j∈S
Note that
X
Q(S) = Pj (S) = 0.8,
j∈S
Remark.
The key difference in the customer-choice model above
compared to the traditional independent-class models
we studied previously in Sections 2.2.2 and 2.5 is that
X
vt (x) = max λPj (S)(pj + vt−1 (x − 1))
S⊆N
j∈S
+(λP0 (S) + 1 − λ)vt−1 (x)}
X
= max λPj (S)(pj − ∆vt−1 (x)) + vt−1 (x),
S⊆N
j∈S
where
For Example 2.5, it is seen in Figure 2.7 that the efficient sets
are S1 = {Y }, S2 = {Y , K } and S3 = {Y , K , M}.
It can be optimal to offer the highest fare Y and the lowest fare
K , but not the middle fare M.
The proof is involved but derives from the fact that ∆vt−1 (x) is
decreasing in x (see Appendix 2.A).
For Example 2.5, kt∗ (x) = 3 for large x and kt∗ (x) = 2 for
smaller x and kt∗ (x) = 1 for even smaller x values.
Customer-Choice Models
such that
Set Sk is offered if
λ[R(Sk +1 ) − Q(Sk +1 )∆vt−1 (x)] + vt−1 (x)
< λ[R(Sk ) − Q(Sk )∆vt−1 (x)] + vt−1 (x)
or
R(Sk +1 ) − Q(Sk +1 )∆vt−1 (x)
< R(Sk ) − Q(Sk )∆vt−1 (x).
Customer-Choice Models
For k = 1, ..., m − 1,
∗ R(Sk +1 ) − R(Sk )
yk (t) = max x : < ∆vt−1 (x) .
Q(Sk +1 ) − Q(Sk )
Homework.
a) Draw an example figure to compare the behaviours of
R(Sk ) − Q(Sk )∆vt−1 (x) and R(Sk +1 ) − Q(Sk +1 )∆vt−1 (x)
as a function of x.
pk +1 − ∆vt−1 (x)) ≥ 0.
The right hand side in the optimality condition above is the sum
over all the other class j in Zk of the change in purchase
probability times the net gain from selling j.