Strategic Choice of Sales Channel and Business Model for the Hotel Supply Chain

In this paper, we study whether a hotel should cooperate with an independent online travel agency (OTA) to sell rooms, and, if yes, using what business model—the Merchant model or the Agency model. In the Merchant model, the OTA purchases rooms at a discount wholesale price and sells them at a profit, but takes on the risk of having unsold inventory. In the Agency model, the OTA passes reservations booked by its customers to the hotel and receives an agreed commission fee on each transaction. We demonstrate that there is no one strategy tailored to all situations: the choices of channel and business model are closely tied to certain conditions, like the hotel’s room capacity, consumer acceptance of the OTA channel, the increase in market size with the OTA channel and the commission rate charged by the OTA. The hotel’s equilibrium strategy indicates that adding the OTA channel does not increase the hotel’s profit if the hotel’s capacity, the increase in market size with the OTA channel, and consumer acceptance of the OTA channel are relatively small. Regarding the selection of business model, in general, larger hotels offered a larger increase in market size with the OTA channel, and where the commission rate is low, will prefer the Agency model; otherwise hotels will prefer the Merchant model. Managerial guidance regarding channel and business model selection is provided.