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Overselling in a Competitive Environment: Boon or Bane?

NUS Business School, National University of Singapore, 117592 Singapore
weishi{at}nus.edu.sg

In this paper, we study the practice of overselling in a competitive environment where late-arriving consumers value the good higher than early-arriving ones but the former's arrival is uncertain. We show that overselling is a dominant strategy for the firms. However, it can lead to a prisoners' dilemma situation in which all firms are worse off overselling. We further show that only when demand from the late consumers far exceeds the supply and there is a sufficiently high profit margin from reselling does overselling result in a Pareto-dominant outcome for the firms.

Key Words: overselling; overbooking; pricing; revenue management; competition; capacity constraints
History: Received: October 20, 2008; accepted: May 12, 2009.