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Room Rate Patterns and Customers' Propensity To Book a Hotel Room

University of Illinois at Urbana-Champaign, cchen22{at}uiuc.edu

Zvi Schwartz

University of Illinois at Urbana-Champaign, zschwart{at}uiuc.edu

Price-sensitive travelers often access hotels' and intermediaries' Web sites multiple times before they travel. Due to revenue management practices, these deal-seeking consumers are likely to observe (or be quoted) room rates that change considerably over time. This study's findings indicate that the issue of price changes over time is more complex than the current discussion framework about last-minute deals and price integrity suggests. It demonstrates that the room rate change pattern consumers observe while searching for a deal affects their propensity to book. Exploring decision and pricing theory elements, the study demonstrates empirically that through the internal reference price, the price patterns affect consumers' room rate expectations and consequently affect their propensity to book. These findings underscore the noteworthy impact of the Internet-induced reduction of the provider-consumer information gap on the effectiveness of revenue management policies.

Key Words: advanced booking • room rates • propensity to book • revenue management • information asymmetry • internal reference price

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