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A Last-Minute Hotel-Booking Service That Empowers the Hotel

Every night, hotel rooms are left empty. Because hotels don’t often run at full occupancy, these rooms are left as wasted opportunities and hotel managements don’t know how to fix this. Hotel managements struggle with this dilemma: although economic theory would say that they should discount the prices to make at least some profit off of those rooms, if they do so, it will alienate their top customers paying the non-discounted price in advance. How can these companies remain aggressive about their prices and avoid having empty rooms at the end of the day?

A new Californian start-up, HotelTonight has designed a mobile app to fix this problem. The world’s ‘first and only mobile-only last-minute hotel booking service’, HotelTonight randomly selects and displays only a certain number of hotels every day. Because consumers cannot predict what hotel will be displayed, hotels can still keep their high competitive prices. Customers that like their experience at a certain hotel are more likely to pay full price next time since it’s not guaranteed that the hotel will appear on HotelTonight again.¬†Additionally, this system is suppose to benefit the hotel companies since it focuses more on the hotel name rather than just looking for a cheap room. HotelTonight advertises for each hotel with photos of the hotel aiming to get the hotel new loyal customers that are more likely to later pay the full price.

Systems like HotelTonight aim to create perfect matchings between hotels and consumers. Having empty rooms not only is bad for the hotel but it is bad for consumers who want a room and would be willing to pay some amount of money if not the amount that the hotel wants. This system maximizes social welfare as everyone benefits more with the system in place. It seems like this system also gives hotel similar control to a process we learned in class, the process of implementing market-clearing prices. By occasionally offering lower prices, more buyers will eventually buy rooms (what otherwise wouldn’t have been bought), naturally moving towards a perfect matching.

HotelTonight also aims to create stronger ties between a consumer and the hotels. This makes it more appealing than other sites. A good experience with a hotel will cause the customer’s valuation for the hotel to go up, making them more willing to pay a higher price next time. If we look at it from a power standpoint, the hotel becomes more powerful within the network. A larger audience created by a growth of new loyal customers through HotelTonight allows more freedom for the company to push for aggressive prices due to increased demand.



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September 2014