Hotel Overbooking and Cooperation with Third-Party Websites

Abstract

Hotels cooperate with third-party websites to enhance their competitive position and attain sustainable development in the era of e-commerce. Furthermore, hotel managers overbook to hedge against last-minute cancellations and customer no-shows. This paper discusses pricing and overbooking strategies of a hotel in the context of cooperation with multiple third-party websites and analyzes how these strategies influence the cooperation process. The increase in profits resulting from the overbooking strategy is also examined. A model of a Stackelberg game between the hotel and third-party websites and a Nash game among the third-party websites are developed to analyze the process. Results indicate that the compensation coefficient has a slight influence on hotel pricing strategy, but causes a sharp decrease in overbooking level. As the hotel demands to lessen the probability of denying under higher compensation rate, the third-party websites would exert less sales effort to reduce the demand of online customers. Results also show that under a given market demand, hotel effort only serves to redistribute market shares among the hotel and third-party websites, without influencing hotel pricing and overbooking decisions. Specifically, the market shares of the third-party websites decrease in the effort level of the hotel resulting from an increase in the hotel market share. Finally, in the numerical example where one hotel and two websites are analyzed, hotel overbooking strategy improves hotel profit by 4.20%, whereas profit improvements for Websites 1 and 2 are as high as 5.26% and 5.21%, respectively. Managerial implications of the study are also provided.

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