***Update*** It looks like United has now implemented a bidding strategy for allocating seats over capacity:
United got in hot waters today for “overbooking” a flight and then forcibly removing an elderly passenger from his seat. Almost any casual observer would say that they probably should have just offered a higher voucher amount. Why wouldn’t United just offer $1200/1500/2000 in vouchers? Everyone has a price, right? Whatever that price is, it must certainly be less than the cost of the bad publicity that has followed the incident. Alternatively, many observers questioned why didn’t United just try to ask a more willing participant to leave?
Both solutions are flawed. If the United announces to its passengers, “$400 going once, going twice! $800 going once, going twice! $1200 going once, going twice!” and so on until they get enough volunteers, they will end up with customers who accepted a lower offer who are now going to demand the better offer. Moreover, if the company continues to do this prevalently, customers will learn that they need to hold out. As a punishing mechanism, the company must stop the voucher offers at some point and impose a forceful solution. Similarly, if United asks one customer, “are you willing to move?” to which the customer sternly replies, “No! I’m a doctor who must make it back for surgery” and this prompts United to go on to the next customer, they will quickly end up with a plane full of extremely important and busy surgeons.
So what’s the solution? How can we get customers to volunteer themselves off the plane without resorting to forceful removal (even if the force does not involve police and a physical altercation as in this case)? Here’s one possible solution: let the customers tell you how much they are willing to take to leave the flight, then pick those customers with the lowest valuations.
Why not offer a reverse auction mechanism (perhaps a reverse second price auction for its truth revealing properties) at the time of booking that requires a customer to state how much compensation he or she is willing to take in order to be scheduled on to the next flight? This way, the valuation process is made blind, and everyone is forced to state their price. Those who must be somewhere will choose the highest price while those who don’t mind staying an extra night in a free hotel room will choose a lower price. Additionally, allow the customers to change their bid (which remains blind to all other passengers) until the time of boarding.
It isn’t rocket science! Well…
Dr. Yang Wang 