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INTRODUCTION
Since the early 1990s hotels have leveraged revenue management (RM) systems' capabilities to optimize room revenue. This article charters the evolution in pricing for hotel RM, from inventory management-based approaches to rate availability, to the emergence of price optimization solutions. It also provides an overview of recent research that explores how consumers use price and non-price information in hotel choice and highlights the impact this may have on pricing for hotel RM.
INVENTORY ALLOCATION MODELS
A number of authors have addressed inventory allocation models in the context of the hotel RM problem (for example, Bitran and Mondschein, 1995; Bitran and Gilbert, 1996; Goldman et al , 2002). Weatherford (1995), for example, compared the performance of a length of stay (LOS) heuristic with Belobaba's (1992) expected marginal seat revenue approach (EMSRb). The objective of the EMSRb approach is to establish protection levels for higher-rate classes and thereby impose booking limits on lower-rate classes. Weatherford's application of the nested by deterministic model shadow prices (NDSP) method, on the other hand, derives nested booking limits while explicitly taking LOS into account. Weatherford (1995) found that the LOS heuristic yielded improvements in expected contribution of up to 2.94 per cent over the EMSRb approach.
Baker and Collier (1999) compared the performances of five booking control policies: two simple threshold approaches (see Relihan, 1989), Weatherford's NDSP method, the hotel nested network method and the hotel bid price method. The hotel nested network method is a NDSP method that includes overbooking, while the bid price method represents a more direct approach to applying the expected marginal revenue (EMR) principle to RM than the rationing approach of protection-level models. In the bid price approach the EMR value of the last (marginal) unit of capacity is applied directly to define the lowest acceptable price, the bid price, for the next unit to be sold. If requested rates are equal to or higher than the bid price, they are accepted; if they are lower than the bid price, they are rejected. Baker and Collier (1999) compared the performance of the five heuristics across 36 hotel operating environments and found that heuristic selection is very much dependent on the operating environment. For example, in some operating environments simpler threshold methods performed as well as...