I first realized this concept on much simpler level. In college, my older friend and I were slowing waking up after a very successful party. There was one beer left. And I said, "That would perfect if we had zero beer left". He replied, "No, one beer is perfect. It means everyone got enough. If there were zero then that means someone could have tried to get a beer after we ran out. With one left, we know that everyone got exactly as much as they wanted."

In many occupancy-based price optimization algorithms (at least in the multi-family sector where I previously worked), it is not optimal to maintain 100% occupancy. It doesn't allow much flexibility. I've seen recommendations for apartments around 95% to cope with fee changing, turn over maintenance etc. I'm sure hotels are in a similar situation (but have even lower percentage due to guest volatility).

If a guest knows they can get a better rate they will force you to drive down rates longterm. Also if you sell out, that means you could have charged more and made more in net