Hotel Cancellation Strategies Under Online Advanced Booking

We segment heterogeneous customers that are different with each other in arriving probability into two types and study possible pricing strategies together with two types of booking cancellation policies, deadline cancellation and refund cancellation. We find that if hotel is risk neutral, the two types of cancellation contracts are the same as each other. However, for a risk-averse hotel, booking contract with refund cancellation policy is better than that with deadline cancellation policy whereas for a risk-seeking hotel, booking contract with deadline cancellation policy is better.