Revenue Management with Strategic Customers: Last-Minute Selling and Opaque Selling

• DOI: 10.1287/mnsc.1090.1125
• Publication Date: 2010-02-13T02:49:50Z
• Authors: Kinshuk Jerath; Serguei Netessine; Senthil K. Veerar...
• Keywords: Stylized fact; Dispose pattern; Intermediary; Cannibalization

Companies in a variety of industries (e.g., airlines, hotels, theaters) often use last-minute sales to dispose unsold capacity. Although this may generate incremental revenues the short term, long-term consequences such strategy are not immediately obvious: More discounted tickets lead more consumers anticipating discount and delaying purchase rather than buying at regular (higher) prices, hence potentially reducing for company. To mitigate behavior, many service providers have turned opaque intermediaries, as Hotwire.com, that hide descriptive attributes departure times airline tickets) so buyer cannot fully predict ultimate provider. Using stylized economic model, paper attempts explain compare benefits directly versus through an intermediary. We utilize notion rational expectations model consumer purchasing decisions: Consumers make early decisions based on regarding future availability, these correct equilibrium. show direct preferred over selling intermediary when valuations travel high or there is little differentiation between competing providers, both; otherwise, dominates. Moreover, contrary usual belief purely mechanisms disposal unused capacity, we becomes probability having demand increases. When firms randomize strategies, they increasingly likely choose with unequal capacities strategy, know clearly where ticket from efficacy decreases.