Online auctions: dynamic pricing and the lodging industry

The traditional channels of distribution for overnight accommodations are rapidly being displaced by website scripting, online intermediaries, and specialty brokers. Businesses that pioneered Internet usage relied on it as a sales and marketing alternative to predecessor product distribution channels. As such, websites replace the traditional trading model to the Internet. Web-enabled companies are popular because the medium renders the process faster, less costly, highly reliable, and secure. Auction-based models impact business models by converting the price setting mechanism from supplier-centric to market-centric and transforming the trading model from ‘one to many’ to ‘many to many.’ Historically, pricing was based on the cost of production plus a margin of profit. Traditionally, as products and services move through the supply chain, from the producer to the consumer, various intermediaries added their share of profit to the price. As Internet based mediums of distribution become more prevalent, traditional pricing models are being supplanted with dynamic pricing. A dynamic pricing model represents a flexible system that changes prices not only from product to product, but also from customer to customer and transaction to transaction. Many industry leaders are skeptical of the long run impact of online auctions on lodging industry profit margins, despite the fact pricing theory suggests that an increase in the flow of information results in efficient market pricing. The future of such endeavors remains promising, but controversial.