Competition, agglomeration, and performance of Beijing hotels

Abstract

Agglomeration theory argues that locating close to competitors can be beneficial in terms of gaining from heightened demand -- more frequent consumer visits and subsequent purchases through reducing consumer search costs. This paper examines the trade-off between competition and the agglomeration effects of physical proximity in the Beijing hotel industry. It seeks to answer two questions: (1) What types of hotels contribute more to agglomeration? (2) What types of hotels benefit more from agglomeration? The results suggest that only high star-ranking joint venture hotels contribute to heightened demand while hotels of all star rankings benefit similarly from agglomeration.