Revenue Management

Chapter 4

Tools for Analysis of Revenue Management, Continued

Chapter 3 focused on the consideration that needs to be given to contribution margin, fixed costs, and profits in assessing revenue management decisions. This chapter considers additional factors that need to be taken into account.

Opportunity Cost

Opportunity cost is an important consideration in revenue management. Opportunity cost is usually defined as the next best alternative’s benefit that is forgone when making a decision to do something else. Thus the opportunity “cost” is the best available “benefit” given up. In considering revenue management strategy, what alternative opportunities exist that will be forgone by adopting the strategy under consideration?

The concept of opportunity ...