Pricing Decision and Cancellation Strategy Selection of ‘Hotel+OTA’ Based on Customer Cancellation Behavior

Abstract

This paper is based on customer cancellation behavior and combines the Hotelling model framework to construct the demand for hotel direct sales channels and online travel agency (OTA) online channels. Then, the Stackelberg game model is used to analyze the optimal pricing problem between hotels and OTA with competitive relationships, and the optimal cancellation strategy for hotel direct channel is analyzed. We demonstrate that the hotel’s most profitable cancellation strategy depend on the loss cost of customer cancellation to the hotel，the cost of channel transfer for customers, and the OTA’s monopoly market segment. When the cost of loss to the hotel due to customer cancellation is relatively small, the hotel chooses a strategy where customers can cancel their reservations (i.e. Y strategy), and the pricing of hotel rooms increases as the cost of cancellation loss increases; otherwise, the hotel chooses a strategy where the customer cannot cancel the reservation (i.e. N strategy), and the pricing of hotel rooms decreases as the cost of cancellation loss increases. When the cost of channel transfer for customers is low, the hotel chooses N strategy; otherwise, the hotel chooses Y strategy. When the OTA’s monopoly market segment (i.e., the customers attracted solely to the OTA channel) is large, the hotel chooses N strategy; otherwise, the hotel chooses Y strategy. These findings can assist hotel managers in improving the design of their pricing and cancellation strategy.