Overbooking Model

Overselling or overbooking is sale of a volatile good or service in excess of actual supply. Overselling is a common practice in the travel and lodging industry, in which it is expected that some people will cancel.

For this reason, it is obligatory to forecast cancellations and no-shows . Insufficient overbooking results in unsold inventory; on the other hand excessive overbooking results in penalty cost which includes both the financial remuneration given to bumped customers and the prospective loss of future revenue due to customer dissatisfaction. The optimal level of overbooking is where the anticipated cost of overbooking for the next unit to be sold is equal to the expected marginal revenue from that unit.

Newsvendor Model
Cash Budget Model

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