Revenue management vs. newsvendor decisions: Does behavioral response mirror normative equivalence?

Ayse Kocabiyikoglu, Celile Itir Gogus, M. Sinan Gonul

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)

Abstract

We study and compare decision-making behavior under the newsvendor and the two-class revenue management models, in an experimental setting. We observe that, under both problems, decision makers deviate significantly from normative benchmarks. Furthermore, revenue management decisions are consistently higher compared to the newsvendor order quantities. In the face of increasing demand variability, revenue managers increase allocations; this behavior is consistent with normative patterns when the ratio of the selling prices of the two customer segments is less than 1/2, but is its exact opposite when this ratio is greater than 1/2. Newsvendors' behavior with respect to changing demand variability, on the other hand, is consistent with normative trends. We also observe that losses due to leftovers weigh more in newsvendor decisions compared to the revenue management model; we argue that overage cost is more salient in the newsvendor problem because it is perceived as a direct loss, and propose this as the driver of the differences in behavior observed under the two problems.

Original languageEnglish
Pages (from-to)750-761
Number of pages12
JournalProduction and Operations Management
Volume24
Issue number5
DOIs
Publication statusPublished - 5 May 2015

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