Question

Explain the Overbooking model and why it is used. Provide your own original example for illustrative purposes.

Answer 1

An overbooking model genrally based on various factors which are used to calculate the optimal overbookings number that can be done to maximise the revenue. The various factors that are consudered to calculate the optimal overbooking numbers are:

Probability of some specific number of no-shows

Oppurtunity cost associated with the place going vacant

Chances of denying a customer this is called as bumping a customer.

and number of overbooked places.

The overbooking model is widely used by the airline industry. it is also used in some of the hotel industries. Specialy in airline industry there are many instances where the airline had to deny service to some of their customers because of miscalculation of their optimaloverboooking number. However, this model helps to generate the maximum revenue considering the No-shows.