Bid price

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The bid price indicates the minimum price at which the resource may be sold at a given point in time.


Single product

It represents the expected marginal revenue generated by the last unit (resource/product) of a constrained and perishable inventory.

The bid price equals the price at which the unit could be sold in the future multiplied by the probability to sell this unit.

Example

In the case of a room inventory (hotel):

At a given point in time, there is a probability of 60% to sell the last room at $100 in the future and a probability of 80% to sell this last room at $80. The bid price is then $64 which is the greatest of ($100 * 60% and $80 * 80%). If a customer requests the room at that time, the minimum price to quote is $64.

Packaged offer: Elementary components

The bid price of an offer composed of elementary components (resources) equals the sum of the bid prices of the different components.

Example

In the case of a tour operator who sells packaged offers that comprise three types of components:

  • travel (airline or train)
  • hotel/resort accommodation
  • excursion/entertainment/events

BP(package) = BP(airline) + BP(hotel) + BP(excursion)

Packaged offer: Constrained components

A bid price may be defined for each offer as the sum of bid prices of constrained components (flight seats and hotel rooms).

Example

If a given offer involves

  • 2 flights segments
    • outbound flight Fo
    • return flight Fr
  • 7 days accommodation in a given room type R1 to R7

The bid price of the offer equals the sum of components bid prices :

BP(Offer) = BP(Fo) + BP(Fr)+BP(R1) +BP(R2) +....+BP(R7)