Nesting Booking Limits in Revenue Management: The Good, the Bad and the Ugly

Revenue Managers usually nest the booking limits to avoid the situation in which high-fare bookings are rejected in favour of low-fare class (The Good). To date, there are both threshold nesting (The Bad) and net nesting (The Ugly) methods. However the consequence on revenues of each one is not clearly understood. This research investigates the underlying assumptions of each method and supports that the stationarity of the demand process is the key point. This paper also suggests a cointegration test and an event study methodology to know what is appropriate in practice.