Competitive Pricing Decisions in Uncertain Times

This article examines the pricing, demand (occupancy), and revenue dynamics in the U.S. hotel industry for the period 2001 to 2007 The results of this seven-year study, which compares hotels' rates to the pricing behavior of competing hotels, reveal that in both bad times (2001-2003) and good times (2004-2007), hotels that offered average daily rates above those of their direct competitors had lower comparative occupancies but higher relative revenue per available rooms (RevPAR). Based on 67,008 hotel observations, this pattern of demand and revenue behavior was consistent for hotels in all market segments (resorts and extended-stay properties were excluded from the study). Overall, the results suggest that the best way for a hotel to have higher revenue performance than its competitive set is to maintain higher rates. This finding suggests that lodging demand may be inelastic in local markets. The results of this study confirm the stance of hotel operators who resist the pressure to undercut competitors' prices.