Effect of Security on Hostels’ Price Premiums: A Hedonic Pricing Approach

Susana Cró,José Manuel Simões,António Miguel Martins,Maria De Lurdes Calisto

doi:10.1177/1938965518777224

Abstract

This article evaluates the impact of security in the hostel industry on the willingness to pay by customers. More specifically, given the importance of security in the decision to travel and in the choice of a given destination, we analyze the impact of security guest reviews on a consumer-generated website on hostel room prices. Furthermore, we investigate whether the impact of security guest reviews on the hostel room prices is higher for the hostels located in the countries with the lowest ranking in the Global Peace Index. Finally, we examine whether females and older guests are willing to pay a premium in terms of price for a hostel with a higher level of security. For this purpose, we estimate a hedonic price function for a sample of consumer reviews of 477 hostels in 22 worldwide capitals, with different levels of peace, from Hostelworld. The results highlight the importance of security on the determination of hostel room prices. We find that customers are willing to pay a higher premium in terms of price, in the least worldwide peaceful countries, for a hostel room with higher levels of security. In the case of women and older guests, the premium they are willing to pay is higher.

Highlights

“Safety and security” has been identified as one of the five global forces that will drive the tourism industry in the new millennium
In the case of women and older customers, they are willing to pay a higher premium in terms of price than men and young people, respectively, for an accommodation with a higher level of security
The results show that hostels that have won the HOSCAR prize tend to charge a higher price and a higher price premium compared with other hostels

Summary

Introduction

“Safety and security” has been identified as one of the five global forces that will drive the tourism industry in the new millennium. The innovative contribution of this study to the literature is the analysis of the impact of the security attribute in the price premium paid by tourists in hostels, based on the hedonic pricing method for the most peaceful/safe versus least peaceful/safe worldwide countries. It diverges from the study carried out by Cró and Martins (2017) which addressed only European countries, where the differences in terms of security are not so noticeable. Our study focuses exclusively on hostels for two reasons: (a) because it is the type of accommodation, in view of their characteristics, with a higher level of crime (see Barker et al, 2002; Boakye, 2010) and (b) the fact that the security attribute is only collected and disclosed on Hostelworld’s website

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Conclusion