Hotel pricing decision in a competitive market under government intervention: a game theory approach

Abstract

ABSTRACT The aim of this study is to provide a price optimization model for competing hotels in terms of energy-saving and environmental protection so that the government intervenes through the provision of appropriate tariffs for their performance. We consider the government as the leader and hotels as the follower in a Stackelberg model then, applied the Nash equilibrium to determine the optimal hotel prices in a competitive situation. We formulated the government’s utility function in terms of raising government revenue, tourism development, and increasing hotel revenues. By calculating the government’s utility function, the optimal level of government tariffs was determined. The results suggest that the government intervention in tourism industry includes measures that benefit tourism. In this regard, the government could increase hotel revenue and tourism expansion by reducing its profits. Also, with government intervention in the tourism sector, it can have good consequences for tourism and encourage hotels to engage in green activities to control the destructive effects of tourist expansion. A broad analysis was carried out on hotels in a touristic area in Iran, and some of the most important managerial insights are explained. This study for the first time investigates the effect of government interferences on hotel pricing while hotels compete with different features. Hence, a decentralized decision-making structure is considered for hotels. In addition, this paper presents a new model for providing optimal prices for hotels in a competitive market, optimal hotel revenue, and government optimal tariffs.