Optimal Overbooking Limits for a 3-Room Type Hotel with Upgrade and Downgrade Constraints

24 Pages Posted: 16 Dec 2012 Last revised: 15 Mar 2014

See all articles by Stanislav Hristov Ivanov

Stanislav Hristov Ivanov

Varna University of Management (VUM); Zangador

Date Written: December 16, 2012

Abstract

The paper develops a mathematical model for optimal overbooking limits for a 3-room type hotel. We assume that the hotel has low, medium and high priced rooms and upgrades and downgrades are possible but with one step only, i.e. low priced rooms can be upgraded only to medium priced ones, high priced rooms can be downgraded to medium priced only, while medium priced room can be both downgraded to low priced and upgraded to high priced rooms. The optimal level of overbookings for each room type is calculated with the help of the expected marginal revenue technique (Ivanov, 2006; Netessine & Shumsky, 2002). In the paper we identify all possible combinations between the overbooking levels of each room type and the actual number of cancellations, no shows and early departures the hotel can face and formulate the costs of the overbookings in each of these combinations.

Keywords: overbooking, hotel, upgrade constraints, downgrade constraints, expected marginal revenue

Suggested Citation

Ivanov, Stanislav Hristov, Optimal Overbooking Limits for a 3-Room Type Hotel with Upgrade and Downgrade Constraints (December 16, 2012). Available at SSRN: https://ssrn.com/abstract=2190042 or http://dx.doi.org/10.2139/ssrn.2190042

Stanislav Hristov Ivanov (Contact Author)

Varna University of Management (VUM) ( email )

13 Oborishte Street
Varna, 9000
Bulgaria
+359 898 680713 (Phone)

HOME PAGE: http://www.vumk.eu

Zangador ( email )

Varna, 9010
Bulgaria

HOME PAGE: http://www.zangador.eu

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