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Competition and coordination in online and offline hotel distribution channels under commission override model

Author

Listed:
  • Peng Liao
  • Fei Ye
  • Giri Kumar Tayi
  • Xiande Zhao

Abstract

We consider a hotel distribution system in which a hotel sells rooms through both its own offline channel and Online-Travel-Agency's (OTA) online channel. In particular, we consider a commonly used allocation scheme in the hotel industry: Commission Override Model (COM), which uses both wholesale contract and consignment contract to sell hotel rooms. In essence, under the wholesale contract OTA 'earns' allotments of rooms after it purchases them; while under the consignment contract the hotel decides on the consignment quantity and retains ownership of the rooms. In contrast to COM, in the traditional Pure Merchant Model (PMM), the revenue from unsold online rooms is permanently lost. We formulate the game model and characterize equilibrium. The results show that COM contract can always improve the hotel's profit in comparison to PMM, and COM is an effective tool to achieve Pareto Improvement with high commission rate and large demand variance.

Suggested Citation

  • Peng Liao & Fei Ye & Giri Kumar Tayi & Xiande Zhao, 2015. "Competition and coordination in online and offline hotel distribution channels under commission override model," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 8(2), pages 193-217.
    • Handle: RePEc:ids:ijrevm:v:8:y:2015:i:2:p:193-217
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    Cited by:

    1. C. I. Chiang & Y. H. Cheng, 2022. "On the Stackelberg game model of the collaboration of a hotel and third-party booking websites," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(1), pages 97-105, February.

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