Location, Location, Location…and Competition

Seul Ki Lee and SooCheong (Shawn) Jang, both of Purdue University, published “Premium or Discount in Hotel Room Rates? The Dual Effects of a Central Downtown Location” in the May 2012 issue of Cornell Hospitality Quarterly. To see the Table of Contents for this issue, please click here. Seul Ki Lee kindly provided the following insights about the article.

Who is the target audience for this article?
The study has significant relevance to hotel developers, real estate analysts, and hospitality researchers whose interest include the location of hotels and its implications.

What inspired you to be interested in this topic?
Location is arguably the most important product dimension of a hotel. Consequently, location can govern the substitutability among hotel rooms and the shape of competition among hotels in a market. We attempted to develop a way to explicitly model the effect of competition as a function of hotel location.

Were there findings that were surprising to you?
Although the direction of effect was as expected, the effect of competition on individual hotels’ pricing ability was somewhat larger than expected. This highlights the existing competition that a new developer should take into consideration when entering a saturated market.

How do you see this study influencing future research and/or practice?
We hope that future studies and practice will consider the incorporation of spatial effects when applicable. In some cases, allowing for spatial correlation may provide more precise and efficient models. In other cases, estimation of the spatial interaction itself may be meaningful, as in our study.

How does this study fit into your body of work/line of research?
This study is a part of our efforts to take into greater consideration the effect of location in hospitality research. Hospitality business is distinct in that consumption cannot be separated from production. Location naturally becomes a part of the product – modeled through travel cost, neighborhood quality, and presence of other resources. We plan to investigate further into the different types of spatial interactions pervasive in the hospitality industry and develop appropriate strategic implications.

How did your paper change during the review process?
The most pronounced changes were regarding clarity of expressions and development of the logical structure when presenting core problem of the study.

What, if anything, would you do differently if you could go back and do this study again?
If data were available, we would look at different cross-sections of the competition structure between economic booms/recessions, potential and oversupply/undersupply cycles. Such analysis would allow better understanding of the Chicago lodging market.

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