Room Rates as Signals of Quality, Sell-Out Risk and the Prospects of Getting a Better Deal: Analytical Model and Empirical Evidence

Chih-Chien Chen, Jane Ruseski and Zvi Schwartz
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Chih-Chien Chen: Department of Recreation, Sport and Tourism, University of Illinois at Urbana-Champaign, 104 Huff Hall, MC-584, 1206 South 4th Street, Champaign IL 61820, USA
Zvi Schwartz: Department of Recreation, Sport and Tourism, University of Illinois at Urbana-Champaign, 104 Huff Hall, MC-584, 1206 South 4th Street, Champaign IL 61820, USA

Tourism Economics, 2009, vol. 15, issue 2, 367-380

Abstract: Travellers make advanced booking decisions in an imperfect information environment, an environment in which price signalling is likely to occur. This study examines the unique informational role of room rates by suggesting an analytical model of room rates as a signal of quality and sell-out risk and by testing the theory empirically. The findings indicate that, even in advanced booking situations in which consumers might associate price deviations with the hotel's revenue management policies, prices can still signal quality to the consumers. Moreover, the study demonstrates that in a deal seeking/advanced booking context, there are two additional opposing impacts of the informational role of prices. Customers' propensity to book increases with higher rates because the perception of the sell-out risk is higher. However, at the same time, customers' propensity to book decreases because the higher room rate induces a higher expectation of the offer of a better deal.

Keywords: hotel room rate; quality; sell-out risk; best deal; uncertainty (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:toueco:v:15:y:2009:i:2:p:367-380

DOI: 10.5367/000000009788254368

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