Changes in Hotel Guests’ Willingness to Pay as the Date of Stay Draws Closer

Abstract

The literature on optimal room rate policies and the experience of many hoteliers suggest that guests’ willingness to pay increases as time draws closer to the date of stay. Traditionally, this phenomenon is explained through changes in market segmentation: Business travelers who tend to book closer to the date of stay are willing to pay more. It is argued in this study that the same customers are willing to pay more as the date of stay nears. A simple consumer decision model that explains this phenomenon is provided. The article examines the conditions that affect the increasing demand, and the relation between time and the increase. In a controlled experiment, subjects were asked to book a room and get the best deal they could find using a simulated Internet site that specialized in discount hotel reservations. The results indicate that although willingness to pay indeed increases as time nears the date of stay, the extent of the change depends on the customers’ search cost.