<P>For years pricing and capacity allocation decisions in most revenue management models have been carried out independently.<BR>This article presents a comprehensive model to integrate these two decisions for perishable products. We<BR>assume that the supplier sells the same products to different micro-markets at distinct prices. Throughout the sales season,<BR>the supplier faces decisions as to which micro-markets or customer classes should be served and at what prices. We<BR>show that (i) at any time, a customer class is active (being served) if and only if the price offered is over a threshold level,<BR>but the optimal price may not be the highest one of the supplier
s choice; (ii) when the price decision is made in conjunction<BR>with inventory, it is similar to the procedure shown in pure pricing models, i.e., the optimal price comes from a<BR>subset of prices that forms a maximum increasing concave envelope; (iii) because of dynamic changes in the optimal<BR>prices, the nested-price structure does not necessarily hold in general and needs to be redefined; and (iv) the optimal<BR>pricing and capacity control policy is based on a sequence of threshold points that incorporate inventory, price and<BR>demand intensity. Numerical examples are provided. </P>

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