Revenue Management of Callable Products
Guillermo Gallego, S. G. Kou, Robert Phillips
Management Science · 2008 · Volume 54 · Issue 3
Abstract
A callable product is a unit of capacity sold to self-selected low-fare customers who willingly grant the capacity provider the option to “call” the capacity at a prespecified recall price. We analyze callable products in a finite-capacity setting with two fare classes where low-fare customers book first, and show that callable products provide a riskless source of additional revenue to the capacity provider. An optimal recall price and an optimal discount-fare booking limit for the two-period problem are obtained. Numerical examples show the benefits from offering callable products can be significant, especially when high-fare demand uncertainty is large. Extensions to multifare structures, network models, overbooking, and to other industries are discussed.
Keywords
revenue management, product design, overbooking, capacity allocation
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