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Effect of Price Instability on Hotel Profitability

Author

Listed:
  • Chiang-Ming Chen

    (Department of Economics, National Chi Nan University, 1 University Road, Puli, Nantou 54561, Taiwan)

  • Kuo-Liang Chang

    (Department of Economics, South Dakota State University, Box 504, Scobey Hall Room 109, Brookings, SD 57007–0895, USA)

Abstract

This paper investigates the influence of price instability on hotel profitability based on Taiwanese international tourist hotel operation data from 1996 to 2008. According to Tisdell (1963), price instability leads to a decrease in the profits of an entrepreneur if the output, once planned, is unalterable. The inflexible supply and volatile demand of the hotel industry offer an ideal case study to confirm Tisdell's theory. This paper provides an empirical test of Tisdell's model, and the authors find that price instability has a statistically significant and negative effect on hotel profitability. The study results lend support to the validity of the price instability hypothesis in Tisdell's model.

Suggested Citation

  • Chiang-Ming Chen & Kuo-Liang Chang, 2012. "Effect of Price Instability on Hotel Profitability," Tourism Economics, , vol. 18(6), pages 1351-1360, December.
    • Handle: RePEc:sae:toueco:v:18:y:2012:i:6:p:1351-1360
    DOI: 10.5367/te.2012.0180
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    References listed on IDEAS

    as
    1. Koide, Takeshi & Ishii, Hiroaki, 2005. "The hotel yield management with two types of room prices, overbooking and cancellations," International Journal of Production Economics, Elsevier, vol. 93(1), pages 417-428, January.
    2. Joe S. Bain, 1951. "Relation of Profit Rate to Industry Concentration: American Manufacturing, 1936–1940," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 65(3), pages 293-324.
    3. Chiang-Ming Chen & Chia-Yu Yeh & Jin-Li Hu, 2011. "Influence of Uncertain Demand on Product Variety: Evidence from the International Tourist Hotel Industry in Taiwan," Tourism Economics, , vol. 17(6), pages 1275-1285, December.
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    Cited by:

    1. Manuel Rodríguez-Díaz & Rosa Rodríguez-Díaz & Ana Cristina Rodríguez-Voltes & Crina Isabel Rodríguez-Voltes, 2018. "Analysing the Relationship between Price and Online Reputation by Lodging Category," Sustainability, MDPI, vol. 10(12), pages 1-16, November.
    2. Stephen J Conroy & Nicholas Toma & Gregory P Gibson, 2020. "The effect of the Las Vegas Strip on hotel prices: A hedonic approach," Tourism Economics, , vol. 26(4), pages 622-639, June.
    3. Tisdell, Clem, 2016. "Financial Implications of Seasonal Variability in Demand for Tourism Services (Final Draft)," Economic Theory, Applications and Issues Working Papers 244574, University of Queensland, School of Economics.
    4. Veronica Leoni & David Boto-García, 2023. "The Effect of Natural Disasters on Hotel Demand, Supply and Labour Markets: Evidence from the La Palma Volcano Eruption," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(4), pages 755-780, December.
    5. Yoon Koh & Agnes DeFranco & Ki-Joon Back, 2017. "Modeling average daily rate (ADR) volatility index and room price positioning matrix," Tourism Economics, , vol. 23(7), pages 1476-1483, November.
    6. Manuel Rodríguez-Díaz & Crina Isabel Rodríguez-Voltes & Ana Cristina Rodríguez-Voltes, 2019. "Determining the Relationships between Price and Online Reputation in Lodgings," Administrative Sciences, MDPI, vol. 9(3), pages 1-27, July.

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