A simulation analysis for the re-solving issue of the network revenue management problem

• Propose a simulation framework to evaluate the network RM solution algorithms.
• Examine the re-solving issue associated with the bid-price control for network RM.
• Support the parameterized function method for being an alternative for network RM.

The classic dynamic programming approach is not applicable to the airline network revenue management (RM) problem of a practical size due to the curse of dimensionality. Many heuristic methods, including the most popular bid-price control approach, generate the approximate control decisions based on various static formulations, which need to be re-solved to take into account the dynamic features of the problem. By a simulation experiment, this study examines the re-solving issue of the bid-price method and tests a new method, the parameterized function approach, in which no problem-resolving is required. Based on the results, the parameterized function approach is found to be a promising alternative. As for the bid-price control approach, a high re-solving frequency is needed for a good result.