Pricing Restaurant Reservations: Dealing with No-Shows

43 Pages Posted: 2 Nov 2012

See all articles by Jaelynn Oh

Jaelynn Oh

University of Pennsylvania - Operations & Information Management Department

Xuanming Su

University of Pennsylvania - Operations & Information Management Department

Date Written: October 31, 2012

Abstract

Reservation no-shows lead to wasted capacity in restaurants. In this paper we consider two remedies: to punish no-shows by charging fees and to encourage show-ups by giving discounts. Our goal is to solve for the optimal price and no-show fee to offer recommendations on what restaurants should do. We model the restaurant as a service queue and frame reservations as an advance selling strategy where strategic customers make the commitment to show up when they are uncertain about their future valuation of consumption in return for a no-wait guarantee. The result of our model suggests that restaurants should charge a no-show penalty as high as the price of meal while giving a discount to reservation customers. Our results are consistent with the current practice of some high-end restaurants selling non-refundable tickets for their prix-fixe menus where ticket holders lose the face value of the ticket when they fail to show up. Also, there are online reservation systems that give discounts to customers making restaurant reservations through their website. Our results also suggest that as a restaurant faces a larger potential market, it should allocate less capacity for reservation customers. When the market size exceeds a certain threshold, it is better off if it stops taking reservations.

Keywords: service operations, restaurants, reservations, queues, advance selling

Suggested Citation

Oh, Jaelynn and Su, Xuanming, Pricing Restaurant Reservations: Dealing with No-Shows (October 31, 2012). Available at SSRN: https://ssrn.com/abstract=2169567 or http://dx.doi.org/10.2139/ssrn.2169567

Jaelynn Oh

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

Xuanming Su (Contact Author)

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

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