Competitive Pricing Decisions in Uncertain Times

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According to the article “Competitive Pricing Decisions in Uncertain Times,” written in the journal “Cornell Hospitality Quarterly,” hotel operators who resist the urge to undercut the prices of competitors are correct in their operating procedures because the demand for lodging in the hospitality industry is inelastic. Therefore, the quickest and most efficient way to higher revenue performance is to maintain higher rates than one's competition. The methods used to bolster the efficacy of this thesis included the analysis of demand models and functional forms conducted in several different industries. Utilizing data from the Center for Hospitality Research at Cornell University and Smith Travel Research, the authors analyzed 67,008 hotel observations made between the years of 2001 and 2007 include Choice Hotels and Best Western among others (Enz, Canina and Lomanno 329). The key variables observed over the course of this study included the “percentage differences between each hotel and its competitive set of hotels based upon the metrics of price, demand and revenue” (Enz, Canina and Lomanno 330). Additionally, the analysis accounted for the relative levels of overall economic health and activity in given time periods, including such relevant data when calculating the variables for what the study deems the “bad times” (the years 2001 - 2003) and the “good times” (the years 2004 – 2007). Using the relative variables and data sets, the study concluded that the hotel operators who resisted the urge to undercut their competitors retained higher profit margins because of the inelastic nature of supply and demand in the hospitality industry over the years studied. That is, it didn’t matter if the prices of commodities in the hospitality industry were increased or decreased, the buying habit of consumers in all demographics remained relatively stable.

Work Cited

Enz, Cathy A., Linda Canina, and Mark Lomanno. "Competitive Pricing Decisions in Uncertain Times." Cornell Hospitality Quarterly 50.3 (2009): 325-341. Print.