Assets, perishable

Zhao, W., YS. Zheng. 2000. Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand. Management Science 46(3), 375-388. 

Y. Y. Feng and G. Gallego. Perishable asset revenue management with markovian time dependent demand intensities. Management Science, 46(7) 941-956, 2000. 

Y. Y. Feng and B. C. Xiao. Maximizing revenues of perishable assets with a risk factor. Operations Research, AH1) 2>2>1-ZA, 1999. 

W. Zhao and Y. S. Zheng. Optimal dynamic pricing for perishable assets with nonhomogeneous demand. Management Science, 46(3) 375-388, 2000. 

Bodily, S. E. and L. R. Weatherford (1995). Perishable-asset Revenue Management Generic and Multiple-price Yield Management with Diversion, Omega, 23, 173-185. 

Weatherford, Lawrence R. and Samuel E. Bodily (1992). A Taxonomy and Research Overview of Perishable-Asset Revenue Management Yield Management, Overbooking, and Pricing, Operations Research, 40, 831-844. 

Transaction cost theory is based on three behavioural assumptions bounded rationality, opportunism, and risk neutrality. According to Williamson (1985) three contractual features influence the level of the costs accompanying transactions (1) transaction-specific investments, (2) uncertainty accompanying the transaction, and (3) frequency of transactions. In the case of agricultural products/produce (like milk) the most distinctive product feature is perishability. This implies several contractual risks, for example the opportunistic behaviour of the contracting parties, or the so-called hold-up problem that comes up if one contracting party tries to exploit the other party s vulnerability connected to his asset specific investments (Royer, 1999 49). 

Any asset that loses value over time is perishable. Clearly, fruits, vegetables, and pharmaceuticals are perishable, but this list also includes products such as computers and cell phones that lose value as new models are introduced. High-fashion apparel is perishable because it cannot be sold at full price once the season is past. Perishable assets also include all forms of production, transportation, and storage capacity that is wasted if not fully utilized. Unused capacity fiom the past has no value. Thus, all unused capacity is equivalent to perished capacity. 

Another example of revenue management for a perishable asset is the use of overbooking by the airline industry. An airplane seat loses all value once the plane takes off. Given that people often do not show up for a flight even when they have a reservation, airlines sell more reservations than the capacity of the plane, to maximize expected revenue. 

The following are two revenue management tactics used for perishable assets ... 

Overbooking or overselling of a supply chain asset is a valuable tactic if order cancellations occur and the asset is perishable. The level of overbooking is based on the trade-off between the cost of wasting the asset if too many cancellations lead to unused assets and the cost of arranging a backup if too few cancellations lead to committed orders being larger than the available capacity. 

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