Overbooking as a Means to Manage Restaurant No-Shows and Cancellations: A Novel Model Extension

Abstract

Newsvendor models have been developed to determine the optimal overbooking level of hotel rooms to manage no-shows and cancellations. This research note extends the newsvendor model to a restaurant context by taking into account the “stretched capacity” of restaurants to determine the optimal overbooking levels for restaurant seats. Data were collected from a restaurant in Taiwan to illustrate the model. The percentage of no-shows per day in this restaurant ranged from 11% to 16%. Utilizing its stretched capacity, the restaurant can overbook up to five more seats than the estimated number of no-shows. The extended model will be most suitable for restaurants that largely depend on reservations (rather than walk-ins), such as luxury or fine-dining restaurants. Directions for future research on restaurant overbooking are provided.