Joint opaque selling systems for online travel agencies

Abstract

This paper analyses the properties of sophisticated opaque booking systems, implemented by online travel agencies in conjunction, usually, with traditional transparent systems. We characterize the opaque products as opposed to traditional transparent products. We focus on the two particular distribution models: opaque posted price system developed by Hotwire.com, and the Name-Your-Own-Price system developed by Priceline.com. We propose an analytical model to compare the results of individual implementation and joint implementation of these two models by an online travel agency in a monopoly position. We consider the cases of complete and incomplete information by introducing consumer uncertainty about their relative propensity to pay and about prevailing states of the world. We find that under realistic assumptions, including moderate levels of uncertainty and average number of ticket sales, joint implementation of both systems provides the best results for the online travel agency, which casts doubt on current dominant strategies.