Empirical studies of revenue management practices: Understand your competition and customers

This dissertation empirically examines factors that challenge revenue management practices in travel industry—air-travel and lodging. In particular, it focuses on strategic interactions among firms and strategic interactions between firms and customers. While most traditional revenue management focuses on single firm problems, better understanding competition and customers recently become two emerging themes in both theories and practices of revenue management. Meanwhile, with 20 years\u27 successful implementation of sophisticated revenue management systems in both airline and hotel industries, they have accumulated rich data to better understand threats and opportunities currently facing both industries. Furthermore, with the proliferation of online distribution channels, extensive information has been made available to both customers and competitors. How to utilize such opportunity to understand customers and competition remains a question to both industry professionals and academic researchers. This dissertation contains three parts. The first part studies implications of strategic alliances in the airline industry. Airlines in the same alliance are competitors and partners at the same time. After alliances are formed, airlines\u27 networks are expected to be consolidated and capacity redundancies would be eliminated, as intensity of competition decreases among alliance partners. However, we find that alliance partners seek to overlap more in their networks. We also find evidence that average prices increase by about $11 per one-way segment coupon in markets where two partners are both present. After ruling out other plausible competing mechanisms, we conclude that these findings are most likely driven by multimarket competition. The second part of the dissertation studies travelers\u27 strategic decision to delay purchases in anticipation of price decreases when purchasing air-tickets. By estimating a structural model on booking and posted fare data, we find that 4.9% to 44.9% of the population are strategic, and that incorporating such strategic customer behavior will increase revenues by 3% to 5% in certain city-pair markets. The third part of the dissertation bridges the two themes by applying a consumer-centric lens to better understand competition in hotel industry. Using online search and clickstream data, we propose a methodology to identify key competitors based on which hotels customers have compared. This approach also provides a network view of localized competition structure. We also find that there is approximately 50% mismatch between competition sets perceived by customers and hoteliers. Independent hotels and distant hotels are usually left out of competition sets