(Sub)Optimality of Dynamic Pricing Decisions in a Competitive Oligopoly

The current study contributes to the largely theoretical field of revenue management with an empirical investigation into the sub-optimality of managerial dynamic pricing policies as evidenced in the Las Vegas hotel market. We demonstrate in this advance selling setting that managers consistently choose prices that yield revenues approximately 25% below optimal levels. Specifically, we show that managers appear to choose prices in a manner consistent with maximizing a mix of occupancy and revenue. We find support for the hypothesis that the unobservability of counterfactual revenues may drive managers' suboptimal pricing policies when the hotel is expected to fill capacity. Additionally, we explore a novel managerial use of online reviews in pricing decisions and the effect of competitors' pricing strategies on a focal hotel's optimal prices. We discover that predicting mean reverting tendencies of online reviews can improve the focal hotel's bottom line during slow seasons. Similarly, we show that there is an economically significant impact of predicting competitors' prices on the focal hotel's pricing policies