Research Note: Market Disequilibrium Effect on Hotel Prices

Abstract

The authors reformulate the hedonic price approach by taking into account market disequilibrium in the hotel market. In the reformulated model, the imbalance between room supply and demand is incorporated into the hedonic price function. The hedonic price function for a hotel facing market disequilibrium is then estimated using data from a national panel of international tourist hotels in Taiwan during the period 1996–2008. They find that market disequilibrium has a positive and significant effect on room rates of tourist hotels in Taiwan; that is, an increase in excess demand may significantly raise the room rates. The effects of other physical attributes of hotels on room rates are also discussed.