Guillermo Gallego and Catalina Stefanescu 1

Service Engineering: The Future of Service Feature Design and Pricing

Service Engineering : The Future of Service Feature Design and Pricing Guillermo Gallego and Catalina Stefanescu

U.S. airlines achieved a startling turnaround in 2009. Profits rose to $2.3 billion after a loss of $3.3 billion the year before. Also during 2009, the airlines collected $2.7 billion in baggage fees (U.S. Bureau of Transportation Statistics 2010). In other words, by charging separately for a service once associated with the price of a ticket, the airlines turned a potential loss into a profit....

Appendix: Upgrades, Upsells and Pricing in Revenue Management

In this Appendix we first present the connection between the stochastic and the deterministic demand model used in Section 2 of the paper. We use the notation of the paper but also expand it as necessary to present the stochastic model and the results. In particular, we flesh out two dual based heuristics for the stochastic problem. Secondly, we briefly explain the connection between the stocha...

Probits Catalina Stefanescu ∗ , Vance

Probit models belong to the class of latent variable threshold models for analyzing binary data. They arise by assuming that the binary response is the indicator of the event that an unobserved latent variable exceeds a given threshold. Estimation can be done either in a likelihood or a Bayesian framework. The probit models can be generalized for the analysis of a variety of qualitative and lim...

Upgrades, Upsells and Pricing in Revenue Management

Capacity providers often experience a mismatch between supply and demand that can be partially alleviated while improving revenues by allowing for product upgrades. When prices are fixed and demands are independent, the problem is to decide which customer demands to upgrade to which products and when. We show that a fairness constraint can be imposed without loss of optimality under mild condit...