INDUSTRIAL ENGINEERING AND OPERATIONS RESEARCH

PRESENTS

IEOR MONDAY SEMINAR

FEBRUARY 14, 2006

Inter-temporal Valuations, Product Design and Revenue Management
 
Ozge Sahin
(with Guillermo Gallego)
Department of Industrial Engineering and Operations Research
Columbia University
New York, NY 10027, USA
 
ABSTRACT:
We study booking processes over finite horizons that culminate with the delivery of a good or service. 
Customer valuations are uncertain and evolve over time. We show that selling call options on capacity 
results in significantly higher expected revenues than low-to-high pricing for all capacity levels likely to 
arise in practice. We analyze a two-period fluid model in detail, and obtain structural results on the optimal 
revenue function and closed-form, distribution-free, bounds on the option price and the optimal revenue. 
Furthermore, we show that the solution to the fluid model yields an asymptotically optimal heuristic for the 
corresponding stochastic problem with overbooking. We extend the model to allow for second period 
arrivals and to the situation where customers update their valuations over multiple periods and study the 
optimal time to issue and exercise call options. Finally, we analyze the multi-market segment model 
over multiple periods.

TIME AND LOCATION: 3:30 - 4:30 P.M. - 3108 ETCHEVERRY HALL

REFRESHMENTS WILL BE SERVED @ 3:00 P.M.