Hotel Agglomeration, Short-term Leases, and Market-entry Strategies: A Game Theory Approach

Abstract

Hotel agglomeration has been recognized as a driving force behind the success of tourist destinations. However, little research has delved into the effect of short-term leases on the dynamics of agglomeration. Utilizing a game theory approach, this study fills this gap in the literature by investigating the influence of short-term leases on agglomeration in the hospitality sector. Employing random-effect and logit models, our research reveals significant changes in the capacity of hotels to harness the benefits of agglomeration in the presence of short-term leases. With these altered market dynamics, newly established hotels gain a competitive advantage by undercutting short-term leases in terms of price class. However, inertia or misinterpretation leads mid-price and upscale hotels to choose a different strategy. This study advances our understanding of demand-driven agglomeration and offers valuable insights into the optimal market-entry strategies for new hotels.