You are in charge of the revenue management department at Richardsons Days Out Hotel, which has a
Question:
You are in charge of the revenue management department at Richardson’s Days Out Hotel, which has a total of 200 rooms. Xperia (a travel fare aggregator company) is offering to buy your rooms for Valentine’s Day at a rate of $200. On the other hand, you can book the rooms through your own website (which is far less popular than Xpedia) at a rate of $300. The demand on your own website follows a normal distribution with a mean of 20 and a standard deviation of 5, and all the rooms that you did not sell to Xpedia nor booked through your website result in unoccupied.
a. How many rooms should you sell to Xpedia?
Suppose now that, instead of selling rooms to Xpedia, you partner with them and do all the bookings through their website. The problem is that, since Xpedia is an aggregator, many guests tend to cancel their reservations at the last minute, which results in hotel rooms being unoccupied. You see this as a missed revenue opportunity and decide to implement the practice of overbooking. The price of each room is $200, and if a guest shows up and a room is not available, you have to book a room at a nearby hotel that costs you $500. Based on historical data, you know that late cancellations happen according to the following distribution:
b. How many overbookings should you accept?
Due to the same late cancellations problem, you decide to reduce the price of your rooms to $150 and request customers to pay a non-refundable fee of $50 at the moment of booking (as a result, customers that show up only pay $100 on sight). Despite these changes, you estimate that the distribution of late cancelations will be the same as before.
How many overbookings should you accept?
Auditing An International Approach
ISBN: 978-0071051415
6th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley