Asymmetric price responses to hotel competition caused by heterogeneous customers’ willingness to pay

Abstract

• Heterogeneous customer willingness to pay causes an asymmetry in competitors’ price responses. • Constructing a game framework featuring an upscale hotel and an upper-midscale hotel. • Price response expressed as an amount by an upscale hotel is more than that of an upper-midscale hotel. • Price response expressed as a percentage by an upscale hotel is less than that of an upper-midscale hotel. • Price response range of the follower is less than the adjustment range of the initiator. Heterogeneous customers’ willingness to pay affects hotel competition and results in competitors’ asymmetric price responses. To study this lopsided effect, we construct a game framework featuring an upscale hotel and an upper-midscale hotel under a series of assumptions. We first analyze hotel pricing and competitor price responses and then compare the competitors’ responding adjustments. Primary findings show that (1) the price response expressed as an amount by the upscale hotel is more than that of the upper-midscale hotel, and that (2) the price response expressed as a percentage by the upscale hotel is less than that of the upper-midscale hotel. Finally, we present reasons for our findings and offer suggestions to hotel revenue managers.