Resource capacity allocation to stochastic dynamic competitors: knapsack problem for perishable items and index-knapsack heuristic

In this paper we propose an approach for solving problems of optimal resource capacity allocation to a collection of stochastic dynamic competitors. In particular, we introduce the knapsack problem for perishable items, which concerns the optimal dynamic allocation of a limited knapsack to a collection of perishable or non-perishable items. We formulate the problem in the framework of Markov decision processes, we relax and decompose it, and we design a novel index-knapsack heuristic which generalizes the index rule and it is optimal in some specific instances. Such a heuristic bridges the gap between static/deterministic optimization and dynamic/stochastic optimization by stressing the connection between the classic knapsack problem and dynamic resource allocation. The performance of the proposed heuristic is evaluated in a systematic computational study, showing an exceptional near-optimality and a significant superiority over the index rule and over the benchmark earlier-deadline-first policy. Finally we extend our results to several related revenue management problems.