Digital marketplace: The role of probabilistic selling strategies in the travel industry

Abstract

With the rise of the digital economy and the depression in the travel industry due to the Covid-19 pandemic, the feasibility and profitability of innovative products on digital platforms, such as probabilistic selling, have garnered significant public attention. This paper utilizes a Salop circular city model featuring a single digital platform, two sellers, and a continuum of consumers to investigate the impact of probabilistic selling on the profits of the digital platform and sellers. We demonstrate that when the consumption utility is relatively low and product differentiation is at a moderate level, the market is in partial coverage. Offering appropriate probabilistic selling products in such cases expands the market, benefiting the digital platform, sellers and consumers simultaneously. Our findings contribute to the existing research on probabilistic selling techniques, digital business models, and the travel industry (e.g., hotel, car rental, airline).