Research

Optimal overbooking strategy in online hotel booking systems(Revised as “Application of Online Booking Data to Hotel Revenue Management” in F-448)

Author

Abstract

The revenue management for online booking systems, which incorporates over-booking by the hotels, is particularly important because of increasing cancellations at the last minute which cause serious damage to the management of the hotels. This study proposes a new quantitative overbooking model for online booking systems, where the room charges of the rival hotels affect the choice behaviors of the customers. Our model enables a hotel to obtain an optimal level of overbooking and a room charge that maximizes the expected sales based on its empirical data on cancellations and the oversale cost per room. Moreover, we present numerical examples of the optimal overbooking strategy and room charge with actual online booking data of two major luxury hotels in Shinjuku area in Tokyo. Furthermore, a price competition of the two hotels is considered, where we find it may lead to significantly low levels of room charges and the expected sales.