Friday, July 15, 2016

Are online travel sites arbitraging away gains from hotel price discrimination?

I glean from this Marketplace story that this may be the case. Hotels tend to charge many different rates for the same room to take advantage of huge variation in the demand elasticity across different groups of consumers. Moreover, you can book a room directly with a big chain hotel or you can book the same room through arrangements they make with online travel sites. But by outsourcing the booking to an online travel site, the hotel loses some of its ability to charge different prices. It would be poor public relations to come out and say, "these guys keep us from charging high prices to some of our preferred customers." But these quotes suggest that the online sites are allowing inelastic customers to get prices aimed at more elastic customers.
“They've just shifted business that might have come in direct to the hotel or to some other channel,” she [Estes Green from Kalibri Labs] said."
...
Hilton’s chief marketing officer, Geraldine Calpin, said skirting commissions to travel sites “was not the intent of the strategy,” which she said was more focused on better anticipating and serving guests’ needs. That's easier to do when they book directly through Hilton. 
“If you're booking through a third-party site we know less about you,” she said. 

Usually, a price discriminator must vertically integrate into the low-priced, elastic portion of the market to prevent arbitrage. Instead, hotels tend to serve the more loyal, high-priced, inelastic portion through their own website. It will be interesting to see how this is resolved.

2 comments:

  1. The internet has changed the way companies use price discrimination. With the emerging trend in travel sites/services online, hotels are finding it harder to use price discrimination as a selling technique.
    Many hotels are teaming up with travel sites to reduce vacancies and maximize profits. Chulkov and Nizovtsev (2016) explained that the emergence of services like google allows these businesses to learn more about consumers shopping trends. This information can be used to help improve efficiency of price discrimination.
    Last year my husband and I purchased a hotel room through a travel site online that is pretty well known. Upon getting to the hotel and explaining the price I paid (mind you it was in New York City) the woman at the hotel desk’s jaw dropped. She explained I should have called.
    When she explained the price I could have paid for the room I was upset. Not with the hotel but at the fact that the travel site and increased the cost so much and made me feel I was getting a deal. This evident price discrimination has caused me to never book through this site again.


    Chulkov, D., & Nizovtsev, D. (2016). ARE YOU GETTING THE BEST DEAL ONLINE? A CASE STUDY IN E-COMMERCE PRICE DISCRIMINATION. Summer Internet Proceedings, 18(2), 113-117.

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  2. I see hotel price discrimination similar to airline ticket price discrimination. Also, now there are memberships for each hotel (and airline) further discriminating customers based on membership level and points. With the internet and the ability to be really cost-conscious, I think of purchasing rooms and airline tickets as buyer beware. You know there is a possibility of being able to get a better price somewhere.

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