Dynamic Pricing Model for Substitutable Products

A dynamic pricing model in airline seat allocation, where a seller offers two substitutable perishable products in the monopolist market, is proposed in this article. The objective is to maximize the total profit gained from both products. We analyze the problem using a multinomial logit model to describe the customer choice behavior. The exact solution is obtained according to the calculated optimal time thresholds. Sellers can dynamically adjust the price policy in the continuous-time process. We also analyze the efficient price strategy according to the marginal expected revenue function. Furthermore, a numerical example is given to illustrate the procedure and the result is compared with the fixed price policy.