Publication Type

Master Thesis

Publication Date

2010

Abstract

This paper introduces a flexible payment scheme in the hotel business. When a customer makes a reservation for a hotel room, the hotel offers an optional payment scheme (Scheme O). If the customer chooses the Scheme O, he/she makes a non-refundable down payment immediately. Meanwhile, the hotel offers a discount if the customer actually checks in to the hotel. Thus, the payment at check-out time is much lower than the original rental rate. Alternatively, if the customer rejects the Scheme O, the reservation is made under a traditional Scheme (Scheme T), where no down payment is required. However, the customer choosing Scheme T must make a full payment without any discount when he checks out from the hotel. The value of Scheme O depends on customers' cancelation or no-show due to the competition from nearby hotels. We consider two scenarios: 1). the hotel knows the expected value of competitor's rental rate (deterministic case); 2). the hotel knows the stochastic distribution of competitor's rental rate (stochastic case). We have obtained optimal solutions for Scheme O for both deterministic and stochastic cases. Moreover, we also study the interaction between designing a flexible payment scheme and pricing on the rental rate of hotel room.

Keywords

pricing, payment scheme, revenue management, hotels

Degree Awarded

MSc in Operations Management

Discipline

Operations and Supply Chain Management

Supervisor(s)

DING, Qing; LIM, Yun Fong

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