Track: Modeling and Simulation

Abstract

Behavioral studies in revenue management usually consider only the capacity allocation problem. In this paper, we study both pricing and capacity allocation decisions and report the findings of a decision-making experiment on a two-class revenue management problem. For simplicity we consider a scenario where for the first customer-class the price is predetermined and the demand is (practically) infinite. For the other customer class, the price and the reserved capacity are determined by the decision-makers. Under one treatment, subjects decide on only the price where the reserved capacity is automatically and optimally determined by the software. Under the other treatment, subjects determine both the price and the reserved capacity simultaneously. We consider two different levels for the predetermined first customer class price; high and low. Our findings indicate that on average pricing decisions are not significantly different from the optimal even when the complexity of the task is increased by a second decision. On the other hand, capacity decisions deviate from the optimal significantly and systematically resulting in a “too-low-too-high” pattern.