Publication Type

Journal Article

Version

acceptedVersion

Publication Date

4-2021

Abstract

We study a novel newsvendor-type problem where the information on demand quantity is not exogenously given. The customer needs to make the booking decision based on her estimation on demand, which is affected by the value of shortage penalty cost. The problem is motivated by low-cost airline service practices where passengers need to book baggage allowance for their travel. The baggage overweight price affects the accuracy of passengers’ baggage weight estimation and thus their booking quantities. Through stochastic decision models, we analytically characterize the impact of shortage penalty cost on passengers’ booking decisions as well as airline’s profit. We consider various modeling settings, including a system with multiple passengers and a system where passengers have stochastic inconvenience costs on not-carrying overweight baggage. The results and insights from our study provide guidelines for firms to set their optimal penalty prices.

Keywords

Airline baggage, Weight estimation, Shortage cost, Booking allowance

Discipline

Operations and Supply Chain Management | Transportation

Research Areas

Operations Management

Publication

Production and Operations Management

Volume

30

Issue

6

First Page

1603

Last Page

1614

ISSN

1059-1478

Identifier

10.1111/poms.13297

Publisher

INFORMS

Embargo Period

10-1-2022

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/poms.13297

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