Uniform Pricing, Demand Shocks, and Organizational Form: Evidence from the Hotel Industry

Abstract

We analyze if hotels that belong to geographically dispersed multi-unit firms adjust their prices in response to local demand shocks and whether these responses differ by the hotel’s organizational form. Hotels can be company-managed, franchised, or independently owned, and managerial incentives differ across these organizational forms. Unlike prior studies focusing on retail chains, we do not find evidence of uniform pricing among hotels – neither across nor within organizational form. The price responses to local shocks differ when the hotel operator is a residual claimant on outlet profits, by the type of demand (transient vs. repeat customers) and hotel quality. Capacity constraints on the other hand, do not have much impact.