Dynamic Seat Selection Surcharge and Allocation Policy in Selling High-Speed Train Tickets

We consider a dynamic capacity control problem with seat selection and dynamic surcharge in the railway industry. In such problems, passenger arrives with a request for an itinerary, having a seat preference and a certain willingness-to-pay for seat preference. The decision-maker needs to decide at each time period whether to open each itinerary, a surcharge for each seat type in each open itinerary, and a seat assignment for each accepted request. The distinguishing feature of this problem is that the seat assignment decision is closely related to the surcharge decision—if the passenger chooses to pay the surcharge, then we must assign him/her a seat of preference, otherwise we can assign the passenger any seat on the train. Moreover, each accepted passenger must be assigned to a unique seat throughout the journey and it is not allowed to use a combination of seats to serve a passenger. We build a modified network revenue management model for this problem involving seat allocation and dynamic surcharge pricing. We consider a static problem in which demands of all requests are known but their arrival periods are unknown, and introduce a set of assignment consistency constraints to ensure the feasibility of opening and surcharge decisions when willingness-to-pay is uncertain. We then propose dynamic policies based on the static problem. In particular, we propose a booking limit control policy, two bid-price control policies and a re-solving a dynamic primal policy, and study the asymptotic loss of these policies. We also conduct numerical experiments to show the effectiveness of proposed policies and the potential gain of setting dynamic surcharges.