Lecture Notes in Economics and Mathematical Systems 575. Berlin: Springer (ISBN 3-540-34419-5/pbk). xv, 199 p. EUR 59.95/net; £ 46.00; $ 79.95 (2006).

The author addresses is this book one of the most interesting aspects of the evolution for operations research/management science, the parallel development of long-term and short-term markets for capacity and output accompanied by a range of option and fixed-commitment contracts (i.e.: forwards and futures). This connects the key operating decisions of the equipment and technologies whose output is the focus of contracts. The author characterizes the form of option-based instruments required to support this evolution. He characterizes the optimal form of options on capacity and related forward contracts. The book has 8 chapters. After the introduction (chapter 1), chapter 2 describes the practice of capacity reservation and dynamic pricing at Lufthansa Cargo. The interaction between freight forwarders and carriers is the main focus. Shortcomings of existing contracts for the advanced sale of capacity are discussed. Chapter 3 gives an extensive overview of flexible contracts in the literature. Chapter 4 describes an innovative option pricing model for capacity reservation. Chapter 5 contains a comparative statics analysis of the model where fixed-commitment and option-type contracts are being benchmarked. The Pareto- or win-win efficiency of such contracts is illustrated. Chapter 6 regards the case of overbooking which is prevalent in the industry. Chapter 7 utilizes sample data obtained from Lufthansa Cargo AG to test the applicabability and impact of option typed contracts. Managerial implications are given in chapter 8. After chapter 1 (Introduction), chapter 2 (Capacity Agreements in the Air Cargo Industry) describes the air cargo industry and the case study: capacity reservation and dynamic pricing at Lufthansa Cargo AG. Chapter 3 (Literature Review on Supply Contracting and Revenue Management) regards advance sale of capacity, supply contracts and revenue management. Chapter 4 (Capacity-option Pricing Model) treats the model overview and setup, assumptions, the intermediary’s problem, and the asset provider’s problem. Model results and comparative statics (Chapter 5) are described by the framework of the analysis of contract types, reduction of double-marginalization, and a summary of the results. Chapter 6 (Model Extensions: Distribution of Profits, Correlations, and Overbooking) extends the model by a distribution of the profits, the independencies between the stochastic variables, and overbooking. Chapter 7 (Application Case Study in the Air Cargo Industry) contains the data sample, the estimation of model variables, and the results. Chapter 8 (Managerial Implications and Conclusions) gives managerial implications and implementation issues and further applications and future research.