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Optimal Pricing Strategy of a Small or Medium-Sized Hotel in Cooperation With a Web Site

E-commerce is becoming an increasingly important marketing channel, because it offers ease, convenience, and customization of products and services to customers. However, small and medium-sized hotels in China seldom create and run their own Web sites due to the low volume of visits and high cost. In order to improve sales and marketing, hotels cooperate with third-party Web sites to establish an electronic channel. Thus, the hotel improves its revenue from an increased occupancy rate, and the Web site generates revenue from the difference between the wholesale room rate provided by the hotel and the discounted rate for customers. Through developing a Stackelberg game model for the cooperation, this article investigates the optimal pricing strategies of hotels and Web sites; analyzes the effects of some parameters, such as standard room rate, on hotel and Web site revenues; and designs a revenue sharing strategy to achieve full channel coordination. This article demonstrates the existence of the equilibrium condition of cooperation between a Web site and several hotels. Managerial implications are suggested for cooperation between a small or medium-sized hotel and a Web site.