Pricing Restaurant Reservations: Dealing with No-Shows
43 Pages Posted: 2 Nov 2012
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: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Consumer Returns Policies and Supply Chain Performance
By Xuanming Su
-
A Model of Consumer Inertia With Applications to Dynamic Pricing
By Xuanming Su
-
Selling to Heterogeneous Customers with Uncertain Valuations under Returns Policies
By Qian Liu and Wenqiang Xiao
-
Advance Selling When Consumers Regret
By Javad Nasiry and Ioana Popescu
-
Dynamic Purchase Decisions Under Regret: Price and Availability
By Enrico Diecidue, Nils Rudi, ...
-
Synchronizing Global Supply Chains: Advance Purchase Discounts
By Wenjie Tang and Karan Girotra
-
Synchronizing Global Supply Chains: Advance Purchase Discounts
By Wenjie Tang and Karan Girotra
-
Returns Policy and Quality Risk in E-Business
By Lu Hsiao and Ying-ju Chen
-
Profiting from Demand Uncertainty: Pricing Strategies in Advance Selling
By Xuying Zhao and Zhan Pang
-
Rationing Capacity in Advance Selling to Signal Quality
By Man Yu, Hyun-soo Ahn, ...