The Importance of Information Asymmetry in Customers’ Booking Decisions

Abstract

Information asymmetry is a key building block of revenue management. Would-be customers have far less indication of future rates and availability than do the service providers. Even with the relatively transparent pricing on various Web sites, customers do not know the extent of demand for their desired itineraries. However, a tool that allows customers to book specific airplane seats and hotel rooms gives customers a greater indication of existing demand. A test of a simulated hotel-room-selection site confirmed that knowledge of demand influenced participants’ willingness to book. However, that knowledge was most salient when room rates were high. On the other hand, when rates were low, knowledge about demand levels did not influence bookings.