Reservations, refunds, and price competition

We analyze the incentives of imperfectly-competitive service providers to uti-lize advance reservation systems for consumers who are heterogeneous with re-spect to their probability of showing up. We investigate how the refund option affects equilibrium prices, and characterize the conditions under which the re-fund option is utilized. Under weak competition, service providers utilize the same booking strategies. In contrast, intense competition might lead firms to segment the market by utilizing different booking strategies. Finally, if partial refunds are utilized, the equilibrium refunds equal exactly to the operation cost whereas the nonrefundable portion equals to capacity cost plus the profit markup