Deviant resale behaviors towards price discrimination in hotel industry and scenario test to potential solution

Abstract

Efficient price discrimination is integral to hotel revenue management in the effort to maximize revenue across different segments and groups (Hayes, D. K., & Miller, A. A. 2011; Laffont, J. J., 1998). Key to its success is the integrity of the system where consumers accurately represent the segments for which prices have been differentially determined (Moira McCormick, 2016). Put differently, consumers should not be able to pay at prices they don’t qualify for. An example of deviant resale behavior is an intermediary enabling a leisure traveler to pay a discounted price for a hotel that is reserved for an exclusive corporate entity. However, the combination of high price sensitivity among consumers and deviant resale behaviors by online travel intermediaries can impact the integrity of effective price discrimination and subsequently hotel revenue. The purpose of this study is to explore industry perceptions pertinent to deviant resale behaviors, summarize the main types and common characteristics of such behaviors. Discussion on the potential solution is focused on educating end consumers to reduce booking deviant prices, that is, some hotels can reject deviant reservations with strict regulations. In this instance, the consumer bears the risk of being denied service and may deter travelers from booking at the deviant rate. The relationship between price and risk follows the structure of the theory of decision making, in that, monetary decisions involving risk impact decision making. A scenario test was conducted to measure two variables’ (risk and discount) interaction, giving suggestions to hotel revenue leaders to better control deviant resale behaviors.