Groupe d’études et de recherche en analyse des décisions


Joint Design and Pricing on a Network

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In order to optimize revenue, service firms must integrate within their pricing policies the rational reaction of customers to their price schedules. In the airline or telecommunication industry, this process is all the more complex due to interactions resulting from the structure of the supply network. In this paper we consider a streamlined version of this situation where a firm's decision variables involve both prices and investments. We model this situation as joint design and pricing problem which we formulate as a mixed-integer bilevel program. Next, we develop an algorithmic framework based on the novel application of Lagrangian relaxation to bilevel programs. Numerical results show that our procedure is capable of solving problems of significant sizes.

, 28 pages