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Saving Seats for Strategic Customers

Author

Listed:
  • Eren B. Çil

    (Lundquist College of Business, University of Oregon, Eugene, Oregon 97403)

  • Martin A. Lariviere

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

Abstract

We consider a service provider in a market with two segments. Members of the first request a reservation ahead of service and will not patronize the firm without one. Members of the second walk in and demand service immediately. These customers have a fixed cost of reaching the firm and may behave strategically. In equilibrium, they randomize between walking in and staying home. The service provider must decide how much of a limited capacity to make available to advance customers. When the advance demand segment offers a higher per customer margin, the firm may opt to decline some reservation requests in order to bolster walk-in demand. When walk-in customers are more valuable, classical revenue management models would dictate that at least some capacity be set aside for high-value later arrivals. Here it is possible that the optimal policy saves no capacity for walk-ins. Thus, it may be better to ignore rather than pamper walk-in customers. This outcome is robust to changes in the model.

Suggested Citation

  • Eren B. Çil & Martin A. Lariviere, 2013. "Saving Seats for Strategic Customers," Operations Research, INFORMS, vol. 61(6), pages 1321-1332, December.
    • Handle: RePEc:inm:oropre:v:61:y:2013:i:6:p:1321-1332
    DOI: 10.1287/opre.2013.1218
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jaelynn Oh & Xuanming Su, 2022. "Optimal Pricing and Overbooking of Reservations," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 928-940, March.
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    3. Tunçalp, Feray & Güneş, Evrim D. & Örmeci, E. Lerzan, 2024. "Modeling strategic walk-in patients in appointment systems: Equilibrium behavior and capacity allocation," European Journal of Operational Research, Elsevier, vol. 313(2), pages 587-601.
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    6. Gérard P. Cachon & Pnina Feldman, 2015. "Price Commitments with Strategic Consumers: Why It Can Be Optimal to Discount More Frequently … Than Optimal," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 399-410, July.
    7. Liu, Yan & Shi, Hongyan & Petruzzi, Nicholas C., 2018. "Optimal quality and quantity provisions for centralized vs. decentralized distribution: Market size uncertainty effects," European Journal of Operational Research, Elsevier, vol. 265(3), pages 1144-1158.
    8. Mustafa O. Kabul & Ali K. Parlaktürk, 2019. "The Value of Commitments When Selling to Strategic Consumers: A Supply Chain Perspective," Management Science, INFORMS, vol. 65(10), pages 4754-4770, October.
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