| Abstract: |
The paper proposes a discrete choice framework for looking at the intra-urban market for hotel services. Like most real estate
products, hotel services are highly differentiated. Thus, every hotel operator faces a downward sloping demand function, and,
in line with micro-economic tradition, is assumed to select a profit maximizing room-price. Optimal price determines quantity of
services and thus also fixes the optimal occupancy. The demand for a given hotel's services is a product of the urban area's
total hotel market size and the hotel's discrete-choice market-share function. Profit maximization cannot be computed in closed
form, therefore it is simulated. Simulations yield optimal room-price as well as occupancy, for high, medium and low quality
hotels, while keeping size constant. As expected, simulation results show that high quality hotels are constrained by size,
especially when the market is up. Those of low quality are constrained by insufficient demand, especially when the market is
down.
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