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Pricing mechanism of variable opaque products for dual-channel online travel agencies

Author

Listed:
  • Zhaofang Mao

    (Tianjin University, Nankai District)

  • Ting Liu

    (Tianjin University, Nankai District)

  • Xiaomei Li

    (Tianjin University, Nankai District)

Abstract

With the rapid development of e-commerce, an increasing number of online travel agencies (OTA) have combined traditional channels with opaque channels to maximise revenue, by implementing a price-discrimination strategy. Based on posted-price (PP) mechanism, this study reviews variable opaque products (VOPs) that allow travellers to change the opacity of an opaque channel to avoid unsatisfactory hotels. The purpose of the study is to determine how to optimise OTA revenue. Using a variation of the Hotelling model, this study examines the behaviour of travellers whose reservation values are relatively low. Additionally, we determine the optimal pricing strategy, which changes with the opacity of the opaque channel. The study shows that when the proportion of high-value travellers is low, OTA should decrease the price of transparent hotels; however, when the proportion is high, OTA should set a high price in the traditional channel, so that high-value travellers buy in the traditional channel, while low-value travellers buy in the opaque channel. And when the valuations differ greatly, OTA tend to increase the price of transparent hotels. Finally, when the number of travellers is constant, revenue increases when hotels increase, though there is an upper limit, and revenue decreases when the market expands. The results provide significant implications.

Suggested Citation

  • Zhaofang Mao & Ting Liu & Xiaomei Li, 2023. "Pricing mechanism of variable opaque products for dual-channel online travel agencies," Annals of Operations Research, Springer, vol. 329(1), pages 901-930, October.
    • Handle: RePEc:spr:annopr:v:329:y:2023:i:1:d:10.1007_s10479-021-04163-4
    DOI: 10.1007/s10479-021-04163-4
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