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Reservations and Overbooking

Author

Listed:
  • Yuri Arenberg

    (Brooklyn College, CUNY)

Abstract

This paper examines the reservations policy of a risk neutral price-setting firm facing a service capacity constraint and the possibility that some of its reservation holders may not show up to claim the service. It is shown that (1) the firm always overbooks; (2) the larger the service capacity, the smaller the rate of overbooking; and (3) if the refundable portion of the firm's fee and the penalty rate for denying service are moderate, an increase in capacity does not necessarily warrant a greater number of reservations.

Suggested Citation

  • Yuri Arenberg, 1991. "Reservations and Overbooking," Eastern Economic Journal, Eastern Economic Association, vol. 17(1), pages 100-108, Jan-Mar.
    • Handle: RePEc:eej:eeconj:v:17:y:1991:i:1:p:100-108
    as

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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume17/V17N1P100_108.pdf
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    References listed on IDEAS

    as
    1. Moore, Thomas Gale, 1986. "U.S. Airline Deregulation: Its Effects on Passengers, Capital, and Labor," Journal of Law and Economics, University of Chicago Press, vol. 29(1), pages 1-28, April.
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    More about this item

    Keywords

    Firm; Firms;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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