Network capacity control using self-adjusting bid-prices

The computation of bid-prices for resources is the most popular instrument for capacity control in network revenue management. The basic task of this control includes supporting accept/reject decisions on dynamically arriving requests for products that differ in their revenues and resource demands, respectively. Within actual control, bid-prices can be used to approximate the opportunity cost of reserving resources to satisfy a request. Using this valuation, the request is accepted if the associated revenue equals or exceeds the opportunity cost. Most commonly, bid prices are computed by linear programming based on the forecasted demand with a few updates during the booking period. Due to accepted requests and variations between forecasted and real demand, the approximation of the opportunity cost becomes less accurate with time passing by, leading to inferior accept/reject decisions. Therefore, we propose the concept of self-adjusting bid-prices. The basic idea includes defining bid-prices as functions of the amount of capacity already used and of the expected demand-to-come. Coefficients for calibrating the bid-price functions are obtained by a simulation-based optimization using the metaheuristic scatter search.