Pricing and Revenue Optimization by Robert L. Phillips

Author:Robert L. Phillips
Language: eng
Format: epub
Publisher: Stanford University Press
Published: 2021-12-15T00:00:00+00:00

9.3.2 Modified EMSR Heuristics

Both EMSR-a and EMSR-b can be modified to incorporate imperfect segmentations. The modifications are based on the assumption that when a class closes, rejected demand for that class may buy up to the next highest class—but not to any higher classes. For example, if we close class 3, some class 3 demand may seek to buy in class 2 but not in class 1. We can easily derive modified versions of the EMSR heuristics under this simple assumption.

Define αj for j = 2, 3, . . . , n as the fraction of class j customers who would purchase in the next higher class, j − 1, if class j is closed. Thus, α3 is the fraction of class 3 customers who would “buy up” to class 2 if they find class 3 closed when they request a booking. αj is referred to as the buy-up factor for class j. Note that there is no buy-up factor for the highest fare class. Then, for the case of normal demand distributions, EMSR-a and EMSR-b can be extended to incorporate buy-up factors as follows:

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