Optimal overbooking decision for a “Hotel + OTA” dual‐channel supply chain

Abstract

AbstractThe overbooking problem with free upgrade substitution for a “Hotel + OTA (online travel agent)” dual‐channel supply chain is investigated. Under the Merchant model framework, the OTA's optimal purchasing quantity and the hotel's optimal overbooking level and strategy are analyzed. The findings reveal that a substitutable overbooking strategy (free upgrade is permitted) is the best for the hotel. However, the optimal decisions depend on parameters such as wholesale price, arrival rate of economy room's consumers, the probability of consumers persuaded to book luxury room, and demand uncertainties in two channels. The OTA's purchasing quantity for economy room decreases in wholesale price, the probability of consumers persuaded to book luxury rooms, and OTA channel demand uncertainty. The hotel's optimal overbooking level decreases in the arrival rate of economy room's consumers and the probability of consumers persuaded to book luxury room and increases in wholesale price and hotel direct channel demand uncertainty. Moreover, the hotel can affect the OTA's purchasing quantity decisions by adjusting wholesale prices and determine the optimal overbooking level to maximize the expected revenue accordingly.