Market structure and the value of overselling under stochastic demands

Ang, G. C., Lim, W. S. and Yeo, W. M. (2016) Market structure and the value of overselling under stochastic demands. European Journal of Operational Research, 252(3), pp. 900-909. (doi: 10.1016/j.ejor.2016.01.056)

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In the operations management literature, traditional revenue management focused on pricing and capacity allocation strategies in a two-period model with stochastic demand. Inspired by travel and lodging industries, we examine a two-period model in which each seller may also adopt the overselling strategy to customers whose valuations are differentiated by timing of arrivals. Widely seen as a popular hedge against consumers’ skipping reservations, we extend the stylized approaches of Biyalogorsky, Carmon, Fruchter, and Gerstner (1999) and Lim (2009) to understand the value of overselling under various market structures. We find that contrary to existing literature, the impact of period-two pricing competition from overselling spills over to period-one such that overselling may not always be a (weakly) dominant strategy once unlimited early demand ceases to hold in a duopoly regime. We provide some numerical studies on the existence of multiple equilibria at the capacity allocation level which actually lead to different selling strategies at the equilibrium despite identical market conditions and firm characteristics.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Yeo, Dr Wee Meng
Authors: Ang, G. C., Lim, W. S., and Yeo, W. M.
College/School:College of Social Sciences > Adam Smith Business School > Management
Journal Name:European Journal of Operational Research
Journal Abbr.:EJOR
ISSN (Online):1872-6860
Published Online:03 February 2016
Copyright Holders:Copyright © 2016 Elsevier B.V.
First Published:First published in European Journal of Operational Research 252(3): 900-909
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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