Saving Seats for Strategic Customers

Eren B. Çil () and Martin A. Lariviere ()
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Eren B. Çil: Lundquist College of Business, University of Oregon, Eugene, Oregon 97403
Martin A. Lariviere: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208

Operations Research, 2013, vol. 61, issue 6, 1321-1332

Abstract: We consider a service provider in a market with two segments. Members of the first request a reservation ahead of service and will not patronize the firm without one. Members of the second walk in and demand service immediately. These customers have a fixed cost of reaching the firm and may behave strategically. In equilibrium, they randomize between walking in and staying home. The service provider must decide how much of a limited capacity to make available to advance customers. When the advance demand segment offers a higher per customer margin, the firm may opt to decline some reservation requests in order to bolster walk-in demand. When walk-in customers are more valuable, classical revenue management models would dictate that at least some capacity be set aside for high-value later arrivals. Here it is possible that the optimal policy saves no capacity for walk-ins. Thus, it may be better to ignore rather than pamper walk-in customers. This outcome is robust to changes in the model.

Keywords: revenue management; service management; reservations (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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