A Hotel Capacity Utilization Model

Abstract

The paper considers a hotel whose capacity is a fixed number of rooms. The demand for these rooms is uncertain and has the usual characteristics of queuing problems. The hotel is assumed to operate as a monopoly and to be risk neutral. The paper shows that a hotel will always choose a price for which it expects to have excess capacity even while pursuing profit maximization. The model can also be used to show that hotels may be willing to considerably undercut their published room rates if by doing so they can gain certain demand. (042, DS!)