ENTER 2012 Conference, Helsingborg, Sweden

1. Selling Tourism Products through the
Opaque Channels
Malgorzata OGONOWSKA
ENTER 2012 Research Track Slide Number 1
Malgorzata OGONOWSKA
GREDEG-CNRS
Université de Nice-Sophia Antipolis, France

2. Introduction
2 types of selling mechanisms for e-tourism products:
• Traditional transparent selling (OTA, Tour Operators,
airline’s and hotel’s websites etc.)
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airline’s and hotel’s websites etc.)
• Opaque selling mechanisms:
– NYOP type
– Posted-price “ Hotwire ” system

3. Opaque Selling
• OTAs specialized in selling remaining tickets;
• Serve very price-sensitive demand;
• goals: market segmentation, reduce the competition &
increase profits
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increase profits
• key information – revealed after the payment
key info:
– exact departure & arrival times, trip’s length, airline’s identity, number of stops
(for airline tickets);
– hotel’s brand, its’ exact location (for hotels)
• advantage: preserves brand’s image

4. • Posted – price opaque mechanism
ex. Hotwire.com
– works like traditional OTA’s, but key information is revealed after
the payment
2 intermediaries – 2 strategies
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the payment
• Name Your Own Price
ex. Priceline.com
– Passenger fills in the travel request form and then gives the price
they want to pay for the service;
– Priceline answers within 15 min;
– no possibility of rebidding.

5. Issue
Main issue:
Since many variants of Opaque systems exist, is
ENTER 2012 Research Track Slide Number 5
Since many variants of Opaque systems exist, is
there an advantage for an online intermediary
to use simultaneously more than one
alternative opaque distribution channel?

6. Literature Review:
Name-Your-Own-Price (1/2)
• Profitability of NYOP channel
– Wilson and Zhang (2008) – how to encourage consumers to bid
maximum;
– Shapiro and Zillante (2009);
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– Wang, Gal-Or, Chatterjee (2005);
– Hann and Terwiesch (2003) - double source of profits for the
NYOP retailer
• Frictional costs help to segment the market
– Hann and Terwiesch (2003),
– Fay (2008)

7. Literature Review:
Name-Your-Own-Price (2/2)
• Repeated bidding
– Fay (2008) – not profitable in the case of duopoly;
– Spann, Skiera and Schäfers (2004) – increases firm’s profits;
– Fay (2003) – partial repeat-bidding deteriorates firm’s profits,
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– Fay (2003) – partial repeat-bidding deteriorates firm’s profits,
while allowing repeated bidding doesn’t affect them;
– Terwiesch, Savin and Hann (2005) – online haggling process.
• Most papers omit the question of product’s opacity except:
– Wang, Gal-Or, Chatterjee (2005) – moderate opacity levels
benefit the seller by segmenting the market;
– Shapiro, Zillante (2007) – detrimental for the consumers, but
neutral for the seller if not too low threshold values.

8. Literature review:
opaque posted-price selling (1/2)
• Opaque selling’s impact on firm’s profits and overall
welfare by enabling price sensitive consumers to travel
– the results depend on the degree of homogeneity of demand.
(Jiang (2007))
ENTER 2012 Research Track Slide Number 8
(Jiang (2007))
• Decreases price competition and allows price
discrimination.
– Grandos, Gupta, Kauffman (2008)
– Shi, Shapiro (2008)

9. Literature review:
opaque posted-price selling (2/2)
• Opaque selling combined with a sufficient brand loyalty
increase firm’s profits.
– Fay (2008)
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• Opaque selling defined as probabilistic selling
– provides a buffer against seller’s own uncertainty and helps to
segment the market . (Fay, Xie (2007))

10. General Settings (1/2)
• 2 everyday flights from City 1 to City 2 (7am and 6pm)
• Level of booking on the traditional channel is estimated
only few days before the departure.
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only few days before the departure.
• OTA implements an opaque selling system to sell the
remaining tickets to low rate travellers.
• 2n potential travellers distributed in 2 subpopulations of n
agents: A who prefers the 7am flight and B – the 6pm;

11. General Settings (2/2)
• More potential travellers (n) then available seats (m);
• Each subset of n potential low rate travellers is distributed
uniformly on a segment [0, a] with a>0 representing
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uniformly on a segment [0, a] with a>0 representing
agent’s maximum willingness to pay.
• Agents are risk neutral i.e. objective: maximise utility

12. States of the world
ENTER 2012 Research Track Slide Number 12

13. Model
The intermediary can implement either:
1. an Opaque “Hotwire style” posted-price system;
– the OTA will set PO – fixed price
2. a NYOP “Priceline style” system;
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2. a NYOP “Priceline style” system;
– the OTA will launch a single-bid process
– and set the threshold price(s)
3. both the systems.
• Stackelberg equilibrium (the OTA is the leader &
consumers - followers)
– Information asymmetry
• The game – solved by backward induction.

14. Timing of actions
• Stage 1:
– the OTA selects between 1., 2. or 3.
– It sets the price for the posted-price opaque channel and/or
launches a single-bid process on the NYOP channel.
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• Stage 2:
– travellers purchase the products on the opaque posted-price
channel or place a single-bid at the NYOP channel.
• Stage 3:
– the travel agency knows the number and the nature of the available
seats on each flight.
– It sets the lower threshold price on the NYOP channel and accepts
the bids that exceed this rate.

15. Cases to consider
1. Under imperfect, but complete information on the states
of the world, potential travellers know:
– exact number and distribution of available seats;
– Other agents’ propensity to pay.
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2. Imperfect and incomplete information:
– Agents estimate imprecisely their location on the segment
3 situations to consider:
1. Small number of tickets (m< ½ n) & moderate uncertainty;
2. Small number of tickets & strong uncertainty;
3. High number of tickets (m> ½ n)

16. Preliminary and expected results
1. Under imperfect, but complete information:
– potential travellers bid prices corresponding to their reservation
prices;
– NYOP only & joint-implementation of both systems is equivalent
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for the intermediary;
2. Under imperfect & incomplete information:
– If uncertainty is strong – consumers estimate very imprecisely their
relative propensity to pay : posted-price Opaque channel only;
– If uncertainty – moderate : potential travellers better estimate their
relative propensity to pay – they split between the two channels:
joint-implementation – the best solution

17. Selling Tourism Products through
the Opaque Channels
Malgorzata OGONOWSKA
ENTER 2012 Research Track Slide Number 17
GREDEG-CNRS
Université de Nice-Sophia Antipolis, France
Thank you!!!