A simultaneous equations model of the hotel room supply and demand in Hong Kong

Abstract

The purpose of the study is to identify the important factors that influence the hotel room supply and demand, and their overall impact on the Hong Kong hotel industry. Nineteen years of time series data are used and a simultaneous equations econometric model is employed. The overall goodness-of-fit of both demand and supply models is very high, suggesting high predictive power. Empirical results indicate that “hotel room price” and “tourist arrivals” are significant factors driving the demand for hotel rooms. In addition, “1990–91 recession” and “the 1997–98 Asian financial crisis” had a significant negative impact on the demand for hotel rooms in Hong Kong. At the same time, “hotel room quantity demanded”, “room occupancy rate”, “last period's room price”, “labor cost”, “last period's average price of Grade A private offices”, and “the Asian financial crisis” all have a significant impact on room price in the short run.