Optimizing Hotel Pricing: A New Approach to Hotel Reservations

This report discusses the economic basis and provides a description of a new hotel reservation pricing approach. In addition, the second half of this report provides a step-by-step key to the screens and functionality of the companion Cornell Hospitality Tool—“Hotel Reservation Optimizer.” The tool applies a general equilibrium approach to establishing a value for a room reservation. The room reservation is essentially an option to occupy a room at an agreed-on room rate. By establishing a price for the reservation that is based on the traveler’s best estimate of whether she will actually occupy the room, the hotelier gains information about how likely it is that the room will be sold. This tool is a mechanism by which hotel managers can obtain more accurate information regarding future room demand.

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