Service commission contract design of online travel agency to create O2O model by cooperation with traditional travel agency under asymmetric information

Abstract

To improve the competitive advantage of online travel agencies (OTAs), the O2O model is achieved by service cooperation with traditional travel agencies (TTAs). The design of a service commission contract is studied when TTAs' service capability type is symmetric and asymmetric information, and the properties of optimal service commission contract are analyzed. Further, the impacts of asymmetry information on the profit of OTA, TTA are compared and also illustrated by a numerical example. Some management implications for OTA establishing service cooperation, including (1) OTA designs service commission contracts by considering different incentives of fixed payment and service commission coefficient to TTA with different service capability; (2) the fixed payment “upward distorted” and service commission coefficient “distorted downward” should be considered under asymmetric information; and (3) because the existence of asymmetric information always leads to the damage of OTA's profit, OTA encourages the TTA disclosure private service information before service cooperation. • TTAs' offline service as an important factor in OTAs O2O model. • Applies the asymmetry information theory in travel agency. • Differentiates and motivates different types of TTA through separation contract.