Case Article—Starting with Good Inputs: Unconstraining Demand Data in Revenue Management

Sales of goods and services are often limited by supply. This limitation restricts the knowledge of the true parameter values for the underlying demand distributions, values needed to calculate optimal protection levels in a revenue management system. We provide a teaching module and a case study to introduce students to the dangers of using “constrained demand.” The teaching module illustrates the negative financial impact of failing to unconstrain demand data. The case study provides realistic constrained demand data that students can use to practice unconstraining methods, such as the commonly used averaging method. We have used these materials successfully in MBA and executive education classes on revenue management.

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