Correspondence: Royce Kallesen, PROS, 3100 Main Street, Suite 900, Houston, TX 77002, USA. Tel: +1 713 335 7908; Fax: +1 713 335 8144; E-mail: rkallesen@prospricing.com

¹Dan Zhang is an assistant professor in the Operation Management area of the Desautels Faculty of Management at McGill University. He was previously affiliated with PROS as a scientist. He worked on many real-world revenue management projects in the service industry. His research work appeared or will appear in Operations Research, Production and Operations Management, and European Journal of Operational Research.

²Royce Kallesen is a senior scientist and Director of Science and Research at PROS. Royce joined PROS in 1999. He manages a team of scientists developing revenue management and pricing products. Prior to joining PROS, Royce was a Member of the Technical Staff of Logicon, Inc., which is now part of Northrop Grumman. Royce earned his Masters of Science in Mathematics with an emphasis in Operations Research from the University of Nebraska at Omaha.

Received 10 July 2007; Revised 10 July 2007; Published online 25 January 2008.

Abstract

In a marketplace with many service providers offering the same or similar products, demand is largely driven by competition. This competitive aspect, however, is not considered explicitly in most existing revenue management (RM) approaches. This paper introduces a new approach that uses a recently developed demand model and competitive price information. A simulation study was conducted to compare the performance of this new approach and several other approaches. Our results lead to several observations and insights into the performance of different approaches and show that incorporating competitive data into RM is a promising direction.