Effect of Price Instability on Hotel Profitability

Abstract

This paper investigates the influence of price instability on hotel profitability based on Taiwanese international tourist hotel operation data from 1996 to 2008. According to Tisdell (1963), price instability leads to a decrease in the profits of an entrepreneur if the output, once planned, is unalterable. The inflexible supply and volatile demand of the hotel industry offer an ideal case study to confirm Tisdell's theory. This paper provides an empirical test of Tisdell's model, and the authors find that price instability has a statistically significant and negative effect on hotel profitability. The study results lend support to the validity of the price instability hypothesis in Tisdell's model.