Title

Flexible Payment Schemes in Hotel Business

Publication Type

Working Paper

Publication Date

2011

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 a payment discount at check-out time if the customer agrees to immediately make a non-refundable down payment. This scheme protects the hotel from customer cancelations or no-shows resulting from competition among nearby hotels while providing an opportunity for the customer to enjoy the overall payment discount. We find the optimal solution for the amount of down payment and discount, and illustrate the value of the flexible payment for both hotel and customer.

Discipline

Hospitality Administration and Management

Research Areas

Operations Management

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