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Opening the online marketplace: An examination of hotel pricing and travel agency on-line distribution of rooms

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  • Ling, Liuyi
  • Guo, Xiaolong
  • Yang, Chenchen

Abstract

This paper studies the optimal pricing strategy of a hotel that establishes an online distribution channel through cooperation with an online travel agency (OTA). The OTA promotes the hotel and sells hotel rooms through its website and receives commission from the hotel for rooms sold. Through a sequence game model, this paper derives the optimal decision on the unit commission of the hotel and the optimal response of the OTA to that commission. The paper notes management implications, including (1) occupancy rate of a hotel before opening online marketing is an important metric for securing cooperation with an OTA; that is, a hotel with lower occupancy rates is more inclined to cooperate with an OTA to achieve an improvement in profits; and (2) a hotel is inclined to establish an online channel through an OTA with many online customers and/or few listed hotels.

Suggested Citation

  • Ling, Liuyi & Guo, Xiaolong & Yang, Chenchen, 2014. "Opening the online marketplace: An examination of hotel pricing and travel agency on-line distribution of rooms," Tourism Management, Elsevier, vol. 45(C), pages 234-243.
    • Handle: RePEc:eee:touman:v:45:y:2014:i:c:p:234-243
    DOI: 10.1016/j.tourman.2014.05.003
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    Cited by:

    1. Vo Nga Thi & Chovancová Miloslava & Tri Ho Thanh, 2019. "A major boost to the website performance of up-scale hotels in Vietnam," Management & Marketing, Sciendo, vol. 14(1), pages 14-30, March.
    2. Sameer Mathur & Prem Prakash Dewani, 2016. "Influence of cultural heritage on hotel prices, occupancy and profit," Tourism Economics, , vol. 22(5), pages 1014-1032, October.
    3. He, Peng & He, Yong & Xu, Feifei, 2018. "Evolutionary analysis of sustainable tourism," Annals of Tourism Research, Elsevier, vol. 69(C), pages 76-89.
    4. Long, Yong & Shi, Pingping, 2017. "Pricing strategies of tour operator and online travel agency based on cooperation to achieve O2O model," Tourism Management, Elsevier, vol. 62(C), pages 302-311.
    5. Ullah, Irfan & Rukh, Gul & Zhou, Jin & Khan, Farman Ullah & Ahmed, Zeeshan, 2019. "Modeling customer satisfaction in online hotel booking," Journal of Retailing and Consumer Services, Elsevier, vol. 48(C), pages 100-104.
    6. Hao Huang & Yide Liu & Dong Lu, 2020. "Proposing a model for evaluating market efficiency of OTAs: Theoretical approach," Tourism Economics, , vol. 26(6), pages 958-975, September.
    7. Feiran Wu & Qianxi Zhang & Rob Law & Tianxiang Zheng, 2020. "Fluctuations in Hong Kong Hotel Industry Room Rates under the 2019 Novel Coronavirus (COVID-19) Outbreak: Evidence from Big Data on OTA Channels," Sustainability, MDPI, vol. 12(18), pages 1-17, September.
    8. Moreno-Izquierdo, Luis & Ramón-Rodríguez, Ana & Such-Devesa, María Jesús, 2018. "The challenge of long-term tourism competitiveness in the age of innovation: Spain as a case study," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 42, pages 13-34.
    9. Iva Dadić & Iva Slivar & Tamara Floričić, 2022. "Online Reservations and Hotel Distribution Channels in European Tourism: A Case of Croatia," Central European Business Review, Prague University of Economics and Business, vol. 2022(1), pages 1-18.
    10. Sarat K. Jena & Purushottam L. Meena, 2019. "Price and Service Competition in a Tourism Supply Chain," Service Science, INFORMS, vol. 11(4), pages 279-291, December.
    11. Pulina, Manuela & Santoni , Valentina, 2018. "Hotel online pricing policy: A review and a regional case study," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 42, pages 93-111.
    12. Chenchen Yang & Junfeng Dong & Jingjing Hao, 2019. "Cooperation Contracts Between Small and Major Scenic Spots in Peak Seasons," SAGE Open, , vol. 9(3), pages 21582440198, July.
    13. Sarat Kumar Jena & Deepti Jog, 2017. "Price competition in a tourism supply chain," Tourism Economics, , vol. 23(6), pages 1235-1254, September.
    14. Qiang Guo & Chris K. Anderson & Junfeng Dong & Pengfei Zhao & Qingkai Ji, 2020. "Coordination Contracts for Hotels and Online Travel Agents," Sustainability, MDPI, vol. 12(8), pages 1-17, April.
    15. Taiga Saito & Akihiko Takahashi & Noriaki Koide & Yu Ichifuji, 2017. "Optimal Overbooking Strategy in Online Hotel Booking Systems," CIRJE F-Series CIRJE-F-1065, CIRJE, Faculty of Economics, University of Tokyo.
    16. Aldric Vives & Marta Jacob & Marga Payeras, 2018. "Revenue management and price optimization techniques in the hotel sector," Tourism Economics, , vol. 24(6), pages 720-752, September.

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