Competition and coordination in online and offline hotel distribution channels under commission override model

Peng Liao, Fei Ye, Giri Kumar Tayi and Xiande Zhao

International Journal of Revenue Management, 2015, vol. 8, issue 2, 193-217

Abstract: We consider a hotel distribution system in which a hotel sells rooms through both its own offline channel and Online-Travel-Agency's (OTA) online channel. In particular, we consider a commonly used allocation scheme in the hotel industry: Commission Override Model (COM), which uses both wholesale contract and consignment contract to sell hotel rooms. In essence, under the wholesale contract OTA 'earns' allotments of rooms after it purchases them; while under the consignment contract the hotel decides on the consignment quantity and retains ownership of the rooms. In contrast to COM, in the traditional Pure Merchant Model (PMM), the revenue from unsold online rooms is permanently lost. We formulate the game model and characterize equilibrium. The results show that COM contract can always improve the hotel's profit in comparison to PMM, and COM is an effective tool to achieve Pareto Improvement with high commission rate and large demand variance.

Keywords: revenue management; game theory; supply chain management; SCM; dual channel; competition; coordination; hotel distribution channels; commission override model; offline channels; online travel agencies; room allocation; hotel industry; profitability. (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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