IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v130y2024ics0264999323004005.html
   My bibliography  Save this article

A signaling theory of reservation cancellation policies

Author

Listed:
  • Choi, Yukyeong
  • Kim, Jeong-Yoo

Abstract

We examine the signaling effect of a hotel’s reservation cancellation policy. We find separating equilibria in which the refund rate indicates high quality. Consumers may cancel their hotel reservations due to unforeseen events. We examine two cases: one in which an unforeseen event may reduce the reservation holder’s valuation to zero if consumers have no other purpose and the other in which the valuation decreases but can be used for an alternative purpose. We show that a low refund rate for cancellations indicates high quality in the former case because a given refund rate is costlier for a high-quality hotel due to its larger volume of reservations. In the latter case, we show that a high refund rate can signal high quality because a given refund rate is less expensive for a high-quality hotel because of its lower cancellation rate.

Suggested Citation

  • Choi, Yukyeong & Kim, Jeong-Yoo, 2024. "A signaling theory of reservation cancellation policies," Economic Modelling, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:ecmode:v:130:y:2024:i:c:s0264999323004005
    DOI: 10.1016/j.econmod.2023.106588
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999323004005
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2023.106588?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Experience good; Quality; Signal; Cancellation policy; Refunds;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:130:y:2024:i:c:s0264999323004005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.