Selling to Strategic Customers: Opaque Selling Strategies

Over the past few years, firms in the travel and entertainment industries have begun using novel sales strategies for revenue management. In this chapter, we study a selling strategy called opaque selling, in which firms guarantee one of several fully specified products, but hide the identity of the product that the consumer will actually obtain until after the purchase is completed. Several firms such as Hotwire, Priceline and Mystery Flights engage in opaque selling of travel products. The academic literature in this area is recent and evolving. We first survey the nascent literature on opaque selling strategies. After presenting the current state of theory and practice, we analyze in-depth a model of competing firms selling horizontally differentiated products through an opaque channel. Consumers strategically time their purchases by developing rational expectations about future availability in the opaque market, keeping in mind that demand is uncertain and product supply could be limited. This model helps illustrate the conditions under which opaque selling can increase firm profits. We conclude the chapter by discussing ongoing research and charting out future research directions.