Basics of Dynamic Programming for Revenue Management

The Revenue Management (RM), namely the pricing and the inventory control of a perishable product, is usually used to improve services marketing efficiency. While booking a flight, the manager has to allocate seats to various fare classes. Then, he has to assess the consequence of a current decision on the future stream of revenue, i.e. accept an certain incoming reservation or wait for a possible higher fare demand, but later. Since its practice becomes omnipresent this last decade, this paper presents some basics of Dynamic Programming (DP) through the most common model, the dynamic discrete allocation of a resource to n fare classes. The properties of the opportunity cost of using a unit of a given capacity, the key of any RM optimizations, are studied in details.