Game-Based Strategy Development for Hotel Yield Management - Innovative Management in Information and Production - page 356

and a constant markup. They showed that it was optimal for the buyer to set the
markup to zero and use only a multiplier. Choi ( 1991 ) also considered the retailer-
Stg system with a single manufacturer and a single retailer and investigated the
effect of the demand curve's shape on the optimal solution. Other related two-
echelon price-sensitive-demand Stackelberg models mainly focus on incorporating
stochastic demand, information asymmetry, and other factors. For instance, Cachon
( 2001 ) developed game-theoretic models for the competitive cases of continuous
review and periodic review of the models. Parlar and Weng ( 2006 ) study the effects
of coordinating pricing and production decisions on the improvement of a firm's
position in a price-competitive environment.

3 Bertrand Model

In this research, two hotels employ yield management. The two hotels are in
duopolistic situation. Strategy employed is analyzed in a single year.
First, the optimal profits are derived theoretically based on mathematical model
under the game environment. Second, the theoretical result is compared with the
one obtained by Monte Carlo simulation. In the same area, two hotels X and Y are
supposed to be duopolistic. The two hotels have the same number of rooms, that is,
100 rooms each. Both the room price systems are also the same. In addition, each
room price is treated by yield management as follows (Fig. 1 ). Let Z denote the
number of customers. Hotel sales and room price vary depending on the number of
room:

Sales volume = one-room price × the number of sold rooms

Price rate: P—0.25 1

A: Selling price rate 0.25 results in room price as 25 %

∼

→ 0 . 25

B: Selling price rate 0.5 results in room price as 50 % → 0 . 50

00
The general demand curve of Fig. 2 is representing two things. First, demand is
increased when price becomes cheaper. Second, demand is decreased when price
becomes higher. This theory can prove same schematic in price decision model of
hotel in the case of duopoly situation.
Therefore, when room price becomes cheaper compared to the competition hotel,
the number of customers increases. On the other hand, when room price becomes
higher, the number of customers decreases (Fig. 3 ). Let me assume that demand

C: Selling price rate 1.0 results in room price as 100 % → 1 .

Fig. 1 Room price system in yield management