Pricing Non-Storable Perishable Items by Using Two Types of Restrictions

This paper studies the optimal pricing problem for firms using two types of restrictions. Linear programming techniques will be used to derive the optimal pricing policies under three different scenarios, namely the nested restrictions, mutually exclusive restrictions and the general case. For the first two scenarios, there exists an optimal pricing policy consisting of at most four price levels that sells restricted units at lower prices. For the general case, we show that there exists an optimal pricing policy consisting of at most five price levels. As an application, we will address the airline fare-pricing problem when a membership restriction and a product restriction are used together. We demonstrate how the models developed in this paper can be applied in these realistic situations with additional insights that help firms pursuing simple pricing structures and capitalizing additional revenue opportunities. Examples, such as, volume discount for tour operators and pricing strategies for special clienteles, are used to support three different ways of using the membership restriction. Subject classifications: Inventory/production: perishable items, pricing policy; Marketing: pricing, segmentation; Programming: applications.