Saving seats for strategic customers

Eren B. Çil, Martin A. Lariviere

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

We consider a service provider in a market with two segments. Members of the first request a reservation ahead of service and will not patronize the firm without one. Members of the second walk in and demand service immediately. These customers have a fixed cost of reaching the firm and may behave strategically. In equilibrium, they randomize between walking in and staying home. The service provider must decide how much of a limited capacity to make available to advance customers. When the advance demand segment offers a higher per customer margin, the firm may opt to decline some reservation requests in order to bolster walk-in demand. When walk-in customers are more valuable, classical revenue management models would dictate that at least some capacity be set aside for high-value later arrivals. Here it is possible that the optimal policy saves no capacity for walk-ins. Thus, it may be better to ignore rather than pamper walk-in customers. This outcome is robust to changes in the model.

Original languageEnglish (US)
Pages (from-to)1321-1332
Number of pages12
JournalOperations Research
Volume61
Issue number6
DOIs
StatePublished - Nov 1 2013

ASJC Scopus subject areas

  • Computer Science Applications
  • Management Science and Operations Research

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