A new e-commerce model called online-to-offline (O2O) e-commerce has attracted significant managerial and academic attention. One of the most recent applications of the O2O model in the travel industry is opaque selling, which enables service providers to offer a new channel to potential customers. This study uses game models to analyze whether service providers with asymmetric capacities should contract with an intermediary to introduce an opaque distribution channel using a posted-price mechanism to sell opaque services. We construct models for both single-channel and dual-channel cases, and derive the optimal pricing strategies. A revenue sharing contract is established between service providers and an intermediary when the decision is made to use an opaque distribution channel. We then compare the profits obtained in the two cases and find some interesting results driven by asymmetric capacities and other related factors.

Introduction

The rapid development of information technology has made it much easier for customers to book services online and then collect them from brick-and-mortar stores. This practice is called “online-to-offline (O2O) e-commerce” and is exemplified by Priceline and Hotwire in the travel industry and Didi and Uber in the transportation industry (Xiao and Dong 2015). Opaque selling is a newly emerging O2O channel whereby service providers sell opaque services to customers online and then the customers consume the service offline. Opaque selling is widely used in travel-related industries such as hotel accommodation, airline travel, and car rental, and provides a new distribution channel in addition to the traditional industry channels. For instance, it is currently being promoted by Hotwire and Priceline in America, as well as Qunar and Ctrip in China. In opaque distribution channels, posted price (PP) is a popular selling mechanism that has now been adopted by Hotwire. In practice, many hotels, such as the Hilton, Home Inn, and Sheraton chains, have started to collaborate with intermediaries such as Hotwire, CheapTickets, Priceline, and OneTravel. This provides a dual-channel system for the hotels whereby the hotel operates the traditional channel while the intermediary operates the opaque distribution channel. The hotel sells its regular services to customers through the traditional channel, so that a customer has all the necessary information about the hotel and can choose the hotel he or she prefers. In the opaque distribution channel, the intermediary hides some of the service attributes from the customer, only revealing them after the customer has paid for their booking.