Dominance, bargaining power and service platform performance

Jiahong Zhang, Yong Zha, Xiaohang Yue and Zhongsheng Hua
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Jiahong Zhang: University of Science of Technology of China, Hefei, P.R. China
Yong Zha: University of Science of Technology of China, Hefei, P.R. China
Xiaohang Yue: University of Wisconsin-Milwaukee, Milwaukee, USA
Zhongsheng Hua: University of Science of Technology of China, Hefei, P.R. China

Journal of the Operational Research Society, 2016, vol. 67, issue 2, 312-324

Abstract: In this paper we study the relationship between a firm (hotel) and a service platform (Ctrip.com). We start with a newsvendor hotel facing two kinds of customers. D-customers order the room directly from the hotel front desk; C-customers order the room through Ctrip.com. Ctrip.com charges the hotel while introducing its members to the hotel. The hotel decides how many rooms are allotted to Ctrip.com to achieve optimal profit. We consider the situation where one party’s demand cannot be observed by another, and study the commonly used wholesale price contract. Interestingly, the contract can always coordinate the system. We then investigate the influence of bargaining power on the profit division under situations where Ctrip.com and hotel, respectively, dominate the system, and find that increasing (or decreasing) a party’s bargaining power without considering the other does not necessarily benefit (or damage) the first party. Further, we discuss how the parties choose dominance and appropriate bargaining power to make a trade-off for better cooperation. An interesting phenomenon is that bargaining power for each party can be identical when any party dominates the system. We also propose a threshold at which the wholesale price contracts can always be the Pareto optimal for the channel.

Date: 2016
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