Competing tourism service provider introduction strategy for an online travel platform with demand information sharing

doi:10.1016/j.elerap.2021.101084

Electronic Commerce Research and Applications

Volume 49, September–October 2021, 101084

https://doi.org/10.1016/j.elerap.2021.101084 Get rights and content

Highlights

•
We consider the OTP’s competing TSP introduction with demand information sharing.
•
The OTP may introduce the competing TSP even if the price competition is fierce.
•
The agency introduction strategy may hurt the OTP even if the commission rate is high.
•
The OTP may share demand information with the wholesale cooperating TSP.

Abstract

This paper considers a tourism supply chain (TSC) where an online travel platform (OTP) that holds private demand information cooperates with an incumbent tourism service provider (TSP) through the agency model. To expand the online travel markets and improve profitability, the OTP can further introduce the competing TSP using the agency model or the wholesale model. Based on a game model, we explore the OTP’s introduction and demand information sharing strategies, and then study the Pareto improvement of the OTP’s strategy choices. We find that both the price competition intensity and the commission rate influence the OTP’s introduction choice, while the demand fluctuation and demand forecast accuracy also critically affect selection under certain conditions. In particular, the OTP may introduce the competing TSP even if the price competition is fierce. Moreover, the agency introduction strategy may hurt the OTP even though the commission rate is high under the agency model. The results also show that regardless of the chosen introduction strategy, the OTP always shares demand information with the agency cooperating TSP, and also may share it with the wholesale cooperating TSP. In addition, the OTP’s strategy choices may lend to the inefficiency of the TSC, and the Pareto improvement in introduction strategy or (and) demand information sharing strategy can be realized by implementing three types of transfer payment contracts.

Introduction

With the rise of e-commerce, the online travel market is booming in recent years (He et al., 2019, Teubner and Graul, 2020). As one of the most active online travel markets worldwide, the Chinese online travel market was reported to reach nearly $260 billion (1.8 trillion yuan) transaction volume in 2019 and keep an annual growth rate of 18.8% (Statista, 2020). Moreover, Allied Market Research (2017) reported that the online travel sales worldwide is expected to reach $1.091 trillion in 2022. As an important transaction intermediary in the online travel market, online travel platforms (OTPs) offer consumers the convenient channels to directly purchase various tourism services by cooperating with lots of agency selling tourism service providers (TSPs) (Rianthong et al., 2016, Ye et al., 2018). Taking Chinese OTPs as an example, the number of consumers who directly purchased from the Chinese OTPs reached nearly 150 million until June 2019, and the transaction volume of the Chinese OTPs accounted for approximately 70% of Chinese online travel sales in the first quarter of 2019 (ChinaTravelNews, 2019a).

In addition to cooperating with the incumbent agency selling TSP, some OTPs also introduce the competing TSPs using the agency model or the wholesale model to satisfy consumers’ diversified needs and improve profitability. For example, Fliggy.com first cooperated with the agency selling Hilton Hotel and then introduced Accor Hotel Group using the agency model to sell the substituted hotel rooms (ChinaTravelNews, 2019b). Conversely, tuniu.com, a leading online leisure travel platform in China, not only acted as an agent for the sale of the destination tourism services in overseas such as Japan and Thailand, but also adopted the wholesale model to introduce the competing TSP to resell the substituted tourism services (PR Newswire, 2018). Although the introduction of competing TSP can improve consumer satisfaction and expand the online travel markets (Zhang et al., 2021), it also causes tourism services competition, which may lead to channel conflict. Hence, OTPs need to weigh the pros and cons to decide whether to introduce a competing TSP. Moreover, there are differences in pricing right and profits acquisition between the agency introduction strategy and the wholesale introduction strategy (Abhishek et al., 2016). To be specific, under the agency introduction strategy, the OTP does not gain the pricing right of the introduction tourism service and charges the competing TSP a commission fee for profits. In comparison, under the wholesale introduction strategy, the OTP gets the pricing right of the introduction tourism service, and profits by earning the spread. As a result, the cooperation model choice, the agency model or the wholesale model, is a critical issue for an OTP when introducing the competing TSP.

Besides, due to the influence of the tourism seasonality and other random factors of the online travel market (Zhang et al., 2009), OTPs’ potential market demand is uncertain, which creates a great challenge for their introduction strategy choice. However, compared with TSPs, OTPs can better capture the market conditions and often possess stronger demand forecasting capabilities because of the closer position to the end market (Li et al., 2018, Zhu et al., 2019). Therefore, OTPs have information advantages in coping with the demand fluctuations risk. OTPs can share with TSPs, which helps TSPs make pricing decisions in response to the potential market demand. Nevertheless, demand information sharing induces OTPs to lose its information advantages and enables informed TSPs to strategically adjust pricing decisions, which may be harmful to OTPs. Accordingly, when choosing the introduction strategy, an OTP is also confronted with a decision on whether to share information with TSPs or not.

Based on the above discussions, we will address the following questions.

(1)
Whether an OTP should introduce the competing TSP, and if so, should the agency introduction strategy or the wholesale introduction strategy be adopted?
(2)
Under different introduction strategies, what is the OTP’s optimal demand information sharing strategy?
(3)
Is there possible for the Pareto improvement of the OTP’s strategy choices, and if yes, how to realize a Pareto improvement?

To address the problems mentioned above, we focus on a tourism supply chain (TSC) in which an OTP partners with an incumbent agency selling TSP. The OTP possessing private demand information can further introduce the competing TSP via the agency or wholesale model to satisfy consumers’ diversified needs. By modelling a multistage game, we first investigate the OTP’s optimal demand information sharing strategy under different introduction strategies, then examine the OTP’s optimal introduction strategy and finally explore the Pareto improvement of the OTP’s strategy choices. The results show that the OTP always shares demand information under the no introduction and the agency introduction strategies. However, under the wholesale introduction strategy, the OTP shares with both competing TSPs under certain conditions. Besides, the competition intensity and the commission rate always affect the introduction choice of the OTP, and the demand fluctuation and demand forecast accuracy also have an impact under certain conditions. Interestingly, the OTP may introduce the competing TSP even if the price competition is fierce. Moreover, the agency introduction strategy may hurt the OTP even though the agency model’s commission rate is high. Additionally, the OTP’s strategy choices may lend to the TSC’s inefficiency. By analyzing the regions where the OTP’s and the TSC’s optimal strategies are inconsistent, we derive that there is possible for the Pareto improvement in OTP’s introduction selection or (and) information sharing decision, and the OTP can design contract to achieve Pareto improvement.

The rest of this paper is organized as follows. In Section 2, the related literature is reviewed. Section 3 characterizes the model. Section 4 derives the OTP’s and the TSPs’ optimal decisions and expected profits under different strategies. Section 5 first explores the OTP’s optimal demand information sharing strategy under different introduction strategies, then investigates the OTP’s optimal introduction strategy and finally examines the Pareto improvement of the OTP’s strategy choices. The extension that the wholesale model is applied with the TSP1 is explored in Section 6. In Section 7, we conclude this paper.

Section snippets

Literature review

Our work is related to two literature streams: (1) the OTP’s channel cooperation, and (2) demand information sharing in supply chain.

Channel structure and demand functions

Considering a tourism supply chain (TSC) in which an online travel platform (OTP) cooperates with an agency selling tourism service provider (TSP1) to sell tourism service 1 under demand uncertainty. The TSP1 sells directly to consumers at retail price $p_{1}$ and shares $λ$ rate of its revenues with the OTP as the commission fee, as shown in Fig. 1(1). In addition, the OTP can introduce the competing tourism service provider (TSP2) using the agency or wholesale model to sell the substituted tourism

Equilibrium analysis

In this section, the OTP’s and the TSPs’ optimal decisions and expected profits under different strategies are derived. To simplify the expressions, let $π_{j}^{Z}$ denotes $j^{'} s$ expected profits under $Z$ strategy. Let ${\bar{π}}_{j}^{M}$ be the deterministic profits of $j$ under $M \in {B, A, W}$ introduction strategy. Besides, $V_{j}^{Z}$ represents $j^{'} s$ information sharing profits under $Z$ strategy. $F_{OTP}^{M}$ ( $F_{TSC}^{M}$ ) refers to the OTP’s (the TSC’s) forecast profits under $M$ introduction strategy.

Results and insights

Section 4 has derived the equilibrium results under different strategies. On this basis, this section first examines the OTP’s optimal demand information sharing strategy under different introduction strategies, then investigates the OTP’s optimal introduction strategy, and finally explores the Pareto improvement of the OTP’s strategy choices.

Extension: The wholesale model is applied with the TSP1

In the base model, considering that the agency model is usually the initial and the dominant form of the cooperation model between the OTP and the TSPs, we assume that the OTP cooperates with the incumbent TSP1 via the agency model. However, the wholesale model may be applied with the incumbent TSP1. Hence, to better reflect the reality and offer more insights for the OTP and the TSPs, we explore the OTP’s optimal strategy when the wholesale model is implemented between them in this section.

Conclusions

In recent years, whether and how to introduce the competing TSP is a critical issue for lots of OTPs to expand markets and improve profitability. Moreover, in the presence of uncertain demand, whether to share demand information with the TSPs is also a strategic concern for these OTPs when introducing the competing TSP. Hence, this paper explores the introduction and information sharing strategies for the OTP considering the competing TSP introduction under demand uncertainty. Through a game

CRediT authorship contribution statement

Yi Liu: Conceptualization, Methodology, Validation, Formal analysis, Writing - original draft. Xumei Zhang: Conceptualization, Methodology, Supervision, Project administration, Funding acquisition. Haiyue Zhang: Conceptualization, Methodology, Formal analysis. Xiaoyu Zha: Conceptualization, Methodology.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgement

This research was supported by the National Natural Science Foundation of China (Grant number 72072016 and 71572020).

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View full text

Competing tourism service provider introduction strategy for an online travel platform with demand information sharing

Highlights

Abstract

Introduction

Section snippets

Literature review

Channel structure and demand functions

Equilibrium analysis

Results and insights

Extension: The wholesale model is applied with the TSP1

Conclusions

CRediT authorship contribution statement

Declaration of Competing Interest

Acknowledgement

Int. J. Prod. Econ.

Annal. Tourism Res.

Tourism Manage. Perspect.

Electron. Commer. Res. Appl.

Comput. Ind. Eng.

Tourism Manage.

Omega

Tourism Manage.

Tourism Manage.

Int. J. Prod. Econ.

Electron. Commer. Res. Appl.

Electron. Commer. Res. Appl.

Electron. Commer. Res. Appl.

J. Retail.

Electron. Commer. Res. Appl.

Eur. J. Oper. Res.

Eur. J. Oper. Res.

Tourism management

Eur. J. Oper. Res.

Electron. Commer. Res. Appl.

Agency selling or reselling? Channel structures in electronic retailing

Manage. Sci.