IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v329y2023i1d10.1007_s10479-021-04163-4.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-021-04163-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-021-04163-4?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.

    References listed on IDEAS

    as
    1. Xiao Huang & Greys Sošić & Gregory Kersten, 2017. "Selling through Priceline? On the impact of name-your-own-price in competitive market," IISE Transactions, Taylor & Francis Journals, vol. 49(3), pages 304-319, March.
    2. Rachel R. Chen & Esther Gal-Or & Paolo Roma, 2014. "Opaque Distribution Channels for Competing Service Providers: Posted Price vs. Name-Your-Own-Price Mechanisms," Operations Research, INFORMS, vol. 62(4), pages 733-750, August.
    3. Li, Tingting & Xie, Jinxing & Lu, Shengmin & Tang, Jiafu, 2016. "Duopoly game of callable products in airline revenue management," European Journal of Operational Research, Elsevier, vol. 254(3), pages 925-934.
    4. Fay, Scott & Xie, Jinhong & Feng, Cong, 2015. "The Effect of Probabilistic Selling on the Optimal Product Mix," Journal of Retailing, Elsevier, vol. 91(3), pages 451-467.
    5. Bo Feng & Wei Liu & Zhaofang Mao, 2018. "Use of opaque sales channels in addition to traditional channels by service providers," International Journal of Production Research, Taylor & Francis Journals, vol. 56(10), pages 3369-3383, May.
    6. Tsamboulas, Dimitrios A. & Nikoleris, Anastasios, 2008. "Passengers' willingness to pay for airport ground access time savings," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(10), pages 1274-1282, December.
    7. Li, Dong & Pang, Zhan, 2017. "Dynamic booking control for car rental revenue management: A decomposition approach," European Journal of Operational Research, Elsevier, vol. 256(3), pages 850-867.
    8. Tingliang Huang & Yimin Yu, 2014. "Sell Probabilistic Goods? A Behavioral Explanation for Opaque Selling," Marketing Science, INFORMS, vol. 33(5), pages 743-759, September.
    9. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-146, March.
    10. Strauss, Arne K. & Klein, Robert & Steinhardt, Claudius, 2018. "A review of choice-based revenue management: Theory and methods," European Journal of Operational Research, Elsevier, vol. 271(2), pages 375-387.
    11. James D. Dana Jr., 1999. "Using Yield Management to Shift Demand When the Peak Time is Unknown," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 456-474, Autumn.
    12. Fay, Scott, 2008. "Selling an opaque product through an intermediary: The case of disguising one's product," Journal of Retailing, Elsevier, vol. 84(1), pages 59-75.
    13. Anderson, Chris K. & Xie, Xiaoqing, 2014. "Pricing and market segmentation using opaque selling mechanisms," European Journal of Operational Research, Elsevier, vol. 233(1), pages 263-272.
    14. Scott Fay & Jinhong Xie, 2015. "Timing of Product Allocation: Using Probabilistic Selling to Enhance Inventory Management," Management Science, INFORMS, vol. 61(2), pages 474-484, February.
    15. Dmitry Shapiro & Xianwen Shi, 2008. "Market Segmentation: The Role of Opaque Travel Agencies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 803-837, December.
    16. Qinghua Li & Bo Li & Ping Chen & Pengwen Hou, 2017. "Dual-channel supply chain decisions under asymmetric information with a risk-averse retailer," Annals of Operations Research, Springer, vol. 257(1), pages 423-447, October.
    17. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    18. Kinshuk Jerath & Serguei Netessine & Senthil K. Veeraraghavan, 2010. "Revenue Management with Strategic Customers: Last-Minute Selling and Opaque Selling," Management Science, INFORMS, vol. 56(3), pages 430-448, March.
    19. Scott Fay & Jinhong Xie, 2008. "Probabilistic Goods: A Creative Way of Selling Products and Services," Marketing Science, INFORMS, vol. 27(4), pages 674-690, 07-08.
    20. David Post & Martin Spann, 2012. "Improving Airline Revenues with Variable Opaque Products: “Blind Booking” at Germanwings," Interfaces, INFORMS, vol. 42(4), pages 329-338, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Zihao & Zhang, Mengying, 2024. "Pricing and Capacity Allocation in Opaque Selling," European Journal of Operational Research, Elsevier, vol. 318(1), pages 230-241.
    2. Zhang, Yi & Hua, Guowei & Cheng, T.C.E. & Zhang, Juliang & Fernandez, Vicenc, 2020. "Risk pooling through physical probabilistic selling," International Journal of Production Economics, Elsevier, vol. 219(C), pages 295-311.
    3. Yifan Wu & Shibo Jin, 2022. "Joint pricing and inventory decision under a probabilistic selling strategy," Operational Research, Springer, vol. 22(2), pages 1209-1233, April.
    4. Qing Li & Christopher S. Tang & He Xu, 2020. "Mitigating the Double‐Blind Effect in Opaque Selling: Inventory and Information," Production and Operations Management, Production and Operations Management Society, vol. 29(1), pages 35-54, January.
    5. Guang Yang & Ying Wang & Mulin Liu, 2023. "Optimal Policy for Probabilistic Selling with Three-Way Revenue Sharing Contract under the Perspective of Sustainable Supply Chain," Sustainability, MDPI, vol. 15(4), pages 1-22, February.
    6. Feng, Bo & Mao, Zhaofang & Li, Hui, 2021. "Choices for competing service providers with heterogeneous customers: Traditional versus opaque sales modes," Omega, Elsevier, vol. 98(C).
    7. Adam N. Elmachtoub & Michael L. Hamilton, 2021. "The Power of Opaque Products in Pricing," Management Science, INFORMS, vol. 67(8), pages 4686-4702, August.
    8. Yeu-Shiang Huang & Tzu-Yi Wu & Chih-Chiang Fang & Tzu-Liang (Bill) Tseng, 2021. "Decisions on Probabilistic Selling for Consumers with Different Risk Attitudes," Decision Analysis, INFORMS, vol. 18(2), pages 121-138, June.
    9. Alonso, Juana M. & Socorro, M. Pilar, 2024. "Blind booking: The effects on passengers' purchase decision, airlines’ profitability, and tourist destinations," Research in Transportation Economics, Elsevier, vol. 105(C).
    10. Zhang, Juliang & Deng, Lan & Liu, Huimin & Cheng, T.C.E., 2022. "Which strategy is better for managing multi-product demand uncertainty: Inventory substitution or probabilistic selling?," European Journal of Operational Research, Elsevier, vol. 302(1), pages 79-95.
    11. Guo, Xiaolong & Bian, Junsong & Wu, Peiyan & Shi, Victor & Chen, Huangen, 2023. "Probabilistic product design with regret-anticipated consumers," International Journal of Production Economics, Elsevier, vol. 263(C).
    12. Mao, Zhaofang & Liu, Wei & Feng, Bo, 2019. "Opaque distribution channels for service providers with asymmetric capacities: Posted-price mechanisms," International Journal of Production Economics, Elsevier, vol. 215(C), pages 112-120.
    13. Aleksandra Kovacheva & Hristina Nikolova, 2024. "Uncertainty marketing tactics: An overview and a unifying framework," Journal of the Academy of Marketing Science, Springer, vol. 52(1), pages 1-22, January.
    14. Rachel R. Chen & Esther Gal-Or & Paolo Roma, 2014. "Opaque Distribution Channels for Competing Service Providers: Posted Price vs. Name-Your-Own-Price Mechanisms," Operations Research, INFORMS, vol. 62(4), pages 733-750, August.
    15. Yong Chao & Lin Liu & Dongyuan Zhan, 2016. "Vertical Probabilistic Selling under Competition: the Role of Consumer Anticipated Regret," Working Papers 16-14, NET Institute.
    16. Ningyuan Chen & Adam N. Elmachtoub & Michael L. Hamilton & Xiao Lei, 2021. "Loot Box Pricing and Design," Management Science, INFORMS, vol. 67(8), pages 4809-4825, August.
    17. Quan Zheng & Xiajun Amy Pan & Janice E. Carrillo, 2019. "Probabilistic Selling for Vertically Differentiated Products with Salient Thinkers," Marketing Science, INFORMS, vol. 38(3), pages 442-460, May.
    18. Fu, Qi & Wang, Qifei & Xu, Xiaoya & Lian, Zhaotong, 2017. "A two-product newsvendor system with a flexible product," International Journal of Production Economics, Elsevier, vol. 193(C), pages 590-601.
    19. Ben Li & Xiaolong Guo & Liang Liang, 2024. "Optimal pricing decision and capacity allocation of opaque selling in airline revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(4), pages 356-368, August.
    20. Ruomeng Cui & Hyoduk Shin, 2018. "Sharing Aggregate Inventory Information with Customers: Strategic Cross-Selling and Shortage Reduction," Management Science, INFORMS, vol. 64(1), pages 381-400, January.

    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:spr:annopr:v:329:y:2023:i:1:d:10.1007_s10479-021-04163-4. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.