Opaque Distribution Channels for Competing Service Providers: Posted Price vs. Name-Your-Own-Price Mechanisms

We consider a two stage model to study the impact of different selling mechanisms of an opaque reseller on competing travel service providers, who face both leisure and business customers. While leisure travelers learn of their need to travel in the first stage, business travelers learn of this need in the second stage. Business travelers have a higher willingness to pay than leisure travelers, but their demand is stochastic. With this pattern of demand, providers find it optimal to reserve capacity for sale in the second stage, after selling to some leisure travelers in the first stage. After the business demand realizes, providers can clear the remaining capacity, if any, through the opaque intermediaries in the second stage. We find that with a single reseller, competing service providers prefer that this reseller uses the posted price instead of the Name-Your-Own-Price mechanism. In addition, despite the potential benefit of using an opaque reseller to price discriminate between business and leisure customers, providers may prefer direct selling to customers without any intermediary in the second stage. We also examine the environment with multiple opaque resellers, and show that for competing service providers profits are the highest when selling via a single posted price reseller.