Intra-metropolitan location choice of star-rated and non-rated budget hotels: The role of agglomeration economies

Abstract

In this study, we aim to investigate the role of agglomeration economies, which include both urbanization economies and localization economies, in determining the hotel location choices within a metropolitan setting. Using a sample of 110 star-rated hotels and 535 non-rated budget hotels established in the urbanized area of Beijing over the period 2005–2012, we estimate a mixed logit model of hotel location selection. The results suggest that both star-rated and non-rated budget hotels are enticed by externalities rising from localization economies to choose locations with a high concentration of hotel incumbents. Also, an inverted-U-shaped relationship exists between hotel incumbent concentration and location probability for both types of hotels. Furthermore, budget hotels prefer locations that offer advantages of urbanization economies. Lastly, our results suggest that both star-rated and budget hotels are more likely to choose locations around Beijing Olympic Park, especially in and before 2008. We discuss several policy implications of these findings.