Coordinating commission to hotels and online travel agencies

Abstract

The purpose of this research is to find the optimal commission rate that the hotels pay the online travel agencies under cooperative decentralization. A Stackelberg game theory is utilized to model their decision making. The online travel agency who sets and provides a commission rate to the hotel acts as the leader; the hotel who decides the guest room rate is the follower. The results show that the optimal commission rate under cooperative decentralization is the ratio of the online travel agency unit cost to total unit cost. The sum of these two firms’ profit will equal the profits under the centralized channel. Notably, even decentralization occurs if through coordination, it can still obtain the maximum profit the same as under centralization.