Hotel booking through online travel agency: Optimal Stackelberg strategies under customer-centric payment service

Abstract

Facing stiff competition, online travel agencies (OTAs) are dedicating to provide customer-centric payment service in hotel online booking, which poses challenges for hotels and customers to make optimal strategies. This paper studies the optimal Stackelberg decisions and strategic interactions of a hotel and a customer in online booking through online travel agencies with customer-centric payment service. The results show that refund rate has great effect on the customer's payment decision, while transaction cost has great influence on the hotel's operational decision. When the refund rate is greater than a threshold, the customer prefers online payment. Being a leader in the Stackelberg game, the hotel can induce customers to choose the payment option with the lowest transaction cost by setting a refund rate.