Impact of penalty cost on customers' booking decisions

• Main Authors: ZHANG, Jianghua, LONG, Daniel Zhuoyu, WANG, Rowan, XIE, Chi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Airline baggage; Weight estimation; Shortage cost; Booking allowance; Operations and Supply Chain Management; Transportation
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6681; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7680/viewcontent/Impact_of_Penalty_Cost_on_Customers__Booking.pdf
• Institution: Singapore Management University

We study a novel newsvendor-type problem where the information on demand quantity is not exogenously given. The customer needs to make the booking decision based on her estimation on demand, which is affected by the value of shortage penalty cost. The problem is motivated by low-cost airline service...