The impact of dynamic price variability on revenue maximization

Graziano Abrate, Juan Luis Nicolau, Giampaolo Viglia

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Abstract

The objective of this article is to analyze the effect of dynamic price variability on revenue maximization. While dynamic pricing is a common practice in tourism, this is the first comprehensive study on the relationship between price variability and revenue maximization. Within the framework provided by the literature on intertemporal price discrimination, price fairness, inventory controls and organizational culture, this research proposes and applies a new hedonic revenue model on a sample of 21,687 observations. The findings suggest that higher dynamic price variability leads to higher hotel revenues. Strategic room unavailability and review rating also exert a clear positive revenue impact. Overall, the benefits from charging different prices for the same service (intertemporal price discrimination) and limiting the number of units available before the demand is known (inventory control) outweigh the potential negative effects of price unfairness and organizational culture. The paper concludes by providing actionable levers for hospitality managers.
Original languageEnglish
Pages (from-to)224-233
Number of pages10
JournalTourism Management
Volume74
Early online date28 Mar 2019
DOIs
Publication statusPublished - 1 Oct 2019

Keywords

  • pricing
  • revenue management
  • intertemporal price discrimination
  • inventory control
  • price fairness
  • organizational culture

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