Selling tourism products through the opaque channels - Malgorzata Ogonowska

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ENTER 2012 Conference, Helsingborg, Sweden

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Selling tourism products through the opaque channels - Malgorzata Ogonowska

  1. 1. Selling Tourism Products through the Opaque Channels Malgorzata OGONOWSKA ENTER 2012 Research Track Slide Number 1 Malgorzata OGONOWSKA GREDEG-CNRS Université de Nice-Sophia Antipolis, France
  2. 2. Introduction 2 types of selling mechanisms for e-tourism products: • Traditional transparent selling (OTA, Tour Operators, airline’s and hotel’s websites etc.) ENTER 2012 Research Track Slide Number 2 airline’s and hotel’s websites etc.) • Opaque selling mechanisms: – NYOP type – Posted-price “ Hotwire ” system
  3. 3. Opaque Selling • OTAs specialized in selling remaining tickets; • Serve very price-sensitive demand; • goals: market segmentation, reduce the competition & increase profits ENTER 2012 Research Track Slide Number 3 increase profits • key information – revealed after the payment key info: – exact departure & arrival times, trip’s length, airline’s identity, number of stops (for airline tickets); – hotel’s brand, its’ exact location (for hotels) • advantage: preserves brand’s image
  4. 4. • Posted – price opaque mechanism ex. Hotwire.com – works like traditional OTA’s, but key information is revealed after the payment 2 intermediaries – 2 strategies ENTER 2012 Research Track Slide Number 4 the payment • Name Your Own Price ex. Priceline.com – Passenger fills in the travel request form and then gives the price they want to pay for the service; – Priceline answers within 15 min; – no possibility of rebidding.
  5. 5. Issue Main issue: Since many variants of Opaque systems exist, is ENTER 2012 Research Track Slide Number 5 Since many variants of Opaque systems exist, is there an advantage for an online intermediary to use simultaneously more than one alternative opaque distribution channel?
  6. 6. Literature Review: Name-Your-Own-Price (1/2) • Profitability of NYOP channel – Wilson and Zhang (2008) – how to encourage consumers to bid maximum; – Shapiro and Zillante (2009); ENTER 2012 Research Track Slide Number 6 – Wang, Gal-Or, Chatterjee (2005); – Hann and Terwiesch (2003) - double source of profits for the NYOP retailer • Frictional costs help to segment the market – Hann and Terwiesch (2003), – Fay (2008)
  7. 7. Literature Review: Name-Your-Own-Price (2/2) • Repeated bidding – Fay (2008) – not profitable in the case of duopoly; – Spann, Skiera and Schäfers (2004) – increases firm’s profits; – Fay (2003) – partial repeat-bidding deteriorates firm’s profits, ENTER 2012 Research Track Slide Number 7 – Fay (2003) – partial repeat-bidding deteriorates firm’s profits, while allowing repeated bidding doesn’t affect them; – Terwiesch, Savin and Hann (2005) – online haggling process. • Most papers omit the question of product’s opacity except: – Wang, Gal-Or, Chatterjee (2005) – moderate opacity levels benefit the seller by segmenting the market; – Shapiro, Zillante (2007) – detrimental for the consumers, but neutral for the seller if not too low threshold values.
  8. 8. Literature review: opaque posted-price selling (1/2) • Opaque selling’s impact on firm’s profits and overall welfare by enabling price sensitive consumers to travel – the results depend on the degree of homogeneity of demand. (Jiang (2007)) ENTER 2012 Research Track Slide Number 8 (Jiang (2007)) • Decreases price competition and allows price discrimination. – Grandos, Gupta, Kauffman (2008) – Shi, Shapiro (2008)
  9. 9. Literature review: opaque posted-price selling (2/2) • Opaque selling combined with a sufficient brand loyalty increase firm’s profits. – Fay (2008) ENTER 2012 Research Track Slide Number 9 • Opaque selling defined as probabilistic selling – provides a buffer against seller’s own uncertainty and helps to segment the market . (Fay, Xie (2007))
  10. 10. General Settings (1/2) • 2 everyday flights from City 1 to City 2 (7am and 6pm) • Level of booking on the traditional channel is estimated only few days before the departure. ENTER 2012 Research Track Slide Number 10 only few days before the departure. • OTA implements an opaque selling system to sell the remaining tickets to low rate travellers. • 2n potential travellers distributed in 2 subpopulations of n agents: A who prefers the 7am flight and B – the 6pm;
  11. 11. General Settings (2/2) • More potential travellers (n) then available seats (m); • Each subset of n potential low rate travellers is distributed uniformly on a segment [0, a] with a>0 representing ENTER 2012 Research Track Slide Number 11 uniformly on a segment [0, a] with a>0 representing agent’s maximum willingness to pay. • Agents are risk neutral i.e. objective: maximise utility
  12. 12. States of the world ENTER 2012 Research Track Slide Number 12
  13. 13. Model The intermediary can implement either: 1. an Opaque “Hotwire style” posted-price system; – the OTA will set PO – fixed price 2. a NYOP “Priceline style” system; ENTER 2012 Research Track Slide Number 13 2. a NYOP “Priceline style” system; – the OTA will launch a single-bid process – and set the threshold price(s) 3. both the systems. • Stackelberg equilibrium (the OTA is the leader & consumers - followers) – Information asymmetry • The game – solved by backward induction.
  14. 14. Timing of actions • Stage 1: – the OTA selects between 1., 2. or 3. – It sets the price for the posted-price opaque channel and/or launches a single-bid process on the NYOP channel. ENTER 2012 Research Track Slide Number 14 • Stage 2: – travellers purchase the products on the opaque posted-price channel or place a single-bid at the NYOP channel. • Stage 3: – the travel agency knows the number and the nature of the available seats on each flight. – It sets the lower threshold price on the NYOP channel and accepts the bids that exceed this rate.
  15. 15. Cases to consider 1. Under imperfect, but complete information on the states of the world, potential travellers know: – exact number and distribution of available seats; – Other agents’ propensity to pay. ENTER 2012 Research Track Slide Number 15 2. Imperfect and incomplete information: – Agents estimate imprecisely their location on the segment 3 situations to consider: 1. Small number of tickets (m< ½ n) & moderate uncertainty; 2. Small number of tickets & strong uncertainty; 3. High number of tickets (m> ½ n)
  16. 16. Preliminary and expected results 1. Under imperfect, but complete information: – potential travellers bid prices corresponding to their reservation prices; – NYOP only & joint-implementation of both systems is equivalent ENTER 2012 Research Track Slide Number 16 for the intermediary; 2. Under imperfect & incomplete information: – If uncertainty is strong – consumers estimate very imprecisely their relative propensity to pay : posted-price Opaque channel only; – If uncertainty – moderate : potential travellers better estimate their relative propensity to pay – they split between the two channels: joint-implementation – the best solution
  17. 17. Selling Tourism Products through the Opaque Channels Malgorzata OGONOWSKA ENTER 2012 Research Track Slide Number 17 GREDEG-CNRS Université de Nice-Sophia Antipolis, France Thank you!!!

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