Expanding Traditional Channel to Opaque Selling Channel for Service Providers
Posted: 15 Jul 2017
Date Written: July 8, 2017
Abstract
Motivated by the recent opaque selling trend promoted by Priceline and Hotwire, this paper studies a game where two collaborative service providers may use an opaque selling channel to satisfy the demand from leisure and business customers. It is a strategic decision for service providers which opaque selling channel is more profitable, posted price (PP) or name your own price (NYOP). By comparing the profits of the three cases (traditional, traditional & PP, and traditional & NYOP), we find some interesting results driven by the strategic interaction between two service providers and by the heterogeneity of customers. First, the dual channel has its strengths beyond those of the single traditional channel, as opaque selling allows service providers to utilize customers’ heterogeneity, and thus lead to price discrimination and customer segmentation. Second, choosing the traditional & NYOP mechanisms can facilitate service providers to beef up the proportion and valuation of business customers, the opacity of the service, and the leisure customers’ pessimistic state. Last, the traditional & NYOP combination outperforms traditional & PP due to the relatively high pessimistic state of leisure customers. Overall, a dual channel is beneficial to all service providers seeking more capacity flexibility for volatile service products.
Keywords: Opacity; Channel Selection; Posted Price (PP); Name Your Own Price (NYOP); Kumaraswamy Distribution
JEL Classification: C61
Suggested Citation: Suggested Citation