Advertisement

Does price gouging happen in the lodging industry? Case of Hurricane Florence

  • Seung Hyun LeeEmail author
  • Jaeyong Lee
Research Article
  • 1 Downloads

Abstract

This study examined price gouging in the lodging industry using the case of Hurricane Florence made landfall in North Carolina. Performance percentage differences were used to determine whether hotels charge exceptionally high room rates in the wake of an emergency. The study supported the notion of price gouging in the lodging industry in the name of the application of revenue management even though price gauging is illegal and prohibited. Extreme increases in room rates were apparent in Wilmington where the Hurricane Florence made landfall and nearby areas in a response to a higher demand, thus resulting a higher revenue. In addition, the closer to Wilmington the hurricane made landfall, higher price increases were detected. The moderating effect of the month on the relationship between distance from landfall and ADR changes was also observed. However, the term of price gouging is often associated with exploitation, so hoteliers should be mindful whether unpredicted additional revenue generated after the hurricane is enough to offset criticism price gouging receive, especially in its legal terms and ethical considerations.

Keywords

Revenue management Price gouging Ethics Lodging industry Hurricane 

Notes

References

  1. Abbey, J. 1983. Is discounting the answer to declining occupancies? International Journal of Hospitality Management 2 (2): 77–82.CrossRefGoogle Scholar
  2. Amelung, B., S. Nicholls, and D. Viner. 2007. Implications of global climate change for tourism flows and seasonality. Journal of Travel research 45 (3): 285–296.CrossRefGoogle Scholar
  3. Atlantic Oceanographic and Meteorological Laboratory (AOML). 2019. Hurricane Research Division. Frequently asked questions: When is hurricane season? National Oceanic and Atmospheric Administration. Archived from the original on May 5, 2009. Accessed 14 Aug 2019.Google Scholar
  4. Barth, J.E. 2002. Yield management: Opportunities for private club managers. International Journal of Contemporary Hospitality Management 14 (3): 136–141.CrossRefGoogle Scholar
  5. Becerra, M., J. Santaló, and R. Silva. 2012. Being better vs. being different: Differentiation, competition, and pricing strategies in the Spanish hotel industry. Tourism Management 34: 71–79.CrossRefGoogle Scholar
  6. Bourgeois, L.J., and K.M. Eisenhardt. 1988. Strategic processes in high velocity environments: Four cases in the Microcomputer industry. Management Science 34 (7): 816–835.CrossRefGoogle Scholar
  7. Burrus Jr., R.T., C.F. Dumas, C.H. Farrell, and W.W. Hall Jr. 2002. Impact of low-intensity hurricanes on regional economic activity. Natural Hazards Review 3 (3): 118–125.CrossRefGoogle Scholar
  8. Choi, S., and A.S. Mattila. 2004. Hotel revenue management and its impact on customers’ perceptions of fairness. Journal of Revenue and pricing Management 2 (4): 303–314.CrossRefGoogle Scholar
  9. Conrady, R., and S. Bakan. 2008. Climate Change and its impact on the tourism industry. In Trends and issues in global tourism 2008, 27–40. Berlin: Springer.Google Scholar
  10. Enz, C.A., and L. Canina. 2010. Competitive pricing in European hotels. In Advances in hospitality and leisure, 3–25. Bingley: Emerald Group Publishing Limited.CrossRefGoogle Scholar
  11. Enz, C.A., L. Canina, and M. Lomanno. 2009. Competitive pricing decisions in uncertain times. Cornell Hospitality Quarterly 50 (3): 325–341.CrossRefGoogle Scholar
  12. Enz, C.A., L. Canina, and B. Noone. 2012. Strategic revenue management and the role of competitive price shifting. Cornell Hospitality Report 12 (6): 6–11.Google Scholar
  13. Enz, C.A., L. Canina, and J.-P. van der Rest. 2015. Competitive hotel pricing in Europe: An exploration of strategic positioning. Cornell Hospitality Report 15 (2): 6–16.Google Scholar
  14. Deacon, R.T., and J. Sonstelie. 1985. Rationing by waiting and the value of time: Results from a natural experiment. Journal of Political Economy 93 (4): 627–647.CrossRefGoogle Scholar
  15. Faulkner, B. 2001. Towards a framework for tourism disaster management. Tourism management 22 (2): 135–147.CrossRefGoogle Scholar
  16. Ferguson, J.L., P.S. Ellen, and G.H. Piscopo. 2011. Suspicion and perceptions of price fairness in times of crisis. Journal of Business Ethics 98 (2): 331–349.CrossRefGoogle Scholar
  17. Granvorka, C., and E. Strobl. 2013. The impact of hurricane strikes on tourist arrivals in the Caribbean. Tourism Economics 19 (6): 1401–1409.CrossRefGoogle Scholar
  18. Gómez-Martín, M.B. 2005. Weather, climate and tourism a geographical perspective. Annals of tourism research 32 (3): 571–591.CrossRefGoogle Scholar
  19. Henderson, J.C. 2005. Responding to natural disasters: Managing a hotel in the aftermath of the Indian Ocean tsunami. Tourism and Hospitality Research 6 (1): 89–96.CrossRefGoogle Scholar
  20. Hitt, M.A., and B.B. Tyler. 1991. Strategic decision models: Integrating different perspectives. Strategic Management Journal 12 (5): 327–351.CrossRefGoogle Scholar
  21. Hwang, J., and L. Wen. 2009. The effect of perceived fairness toward hotel overbooking and compensation practices on customer loyalty. International Journal of Contemporary Hospitality Management 21 (6): 659–675.CrossRefGoogle Scholar
  22. Ivanov, S., and V. Zhechev. 2012. Hotel revenue management—A critical literature review. Tourism Review 60 (2): 175–197.Google Scholar
  23. Jauncey, S., I. Mitchell, and P. Slamet. 1995. The meaning and management of yield in hotels. International Journal of Contemporary Hospitality Management 7 (4): 23–26.CrossRefGoogle Scholar
  24. Jeffrey, D., R.R.D. Barden, P.J. Buckley, and N.J. Hubbard. 2002. What makes for a successful Hotel? insights on hotel management following 15 years of hotel occupancy analysis in England. The Service Industries Journal 22 (2): 73–88.CrossRefGoogle Scholar
  25. Kahneman, D., J.L. Knetsch, and R. Thaler. 1986. Fairness as a constraint on profit seeking: Entitlements in the market. The American Economic Review 76: 728–741.Google Scholar
  26. Kimes, S.E. 1989. The basics of yield management. Cornell Hotel and Restaurant Administration Quarterly 30 (14): 14–19.CrossRefGoogle Scholar
  27. Kimes, S.E. 2002. Perceived fairness of yield management. Cornell Hotel and Restaurant Administration Quarterly 43 (1): 21–30.CrossRefGoogle Scholar
  28. Kimes, S.E., and P.E. Wagner. 2001. Preserving your revenue-management system as a trade secret. Cornell Hotel and Restaurant Administration Quarterly 42 (5): 8–15.CrossRefGoogle Scholar
  29. Kimes, S.E., and J. Wirtz. 2003. Has revenue management become acceptable? Findings from an international study on the perceived fairness of rate fences. Journal of Service Research 6 (2): 125–135.CrossRefGoogle Scholar
  30. Lamanna, Z., K.H. Williams, and C. Childers. 2012. An assessment of resilience: Disaster management and recovery for greater New Orleans’ hotels. Journal of Human Resources in Hospitality & Tourism 11 (3): 210–224.CrossRefGoogle Scholar
  31. Lee, S.H. 2016. How hotel managers decide to discount room rates: A conjoint analysis. International Journal of Hospitality Management 52: 68–77.CrossRefGoogle Scholar
  32. Lee, Y.J., and J.R. Harrald. 1999. Critical issue for business area impact analysis in business crisis management: Analytical capability. Disaster Prevention and Management: An International Journal 8 (3): 184–189.CrossRefGoogle Scholar
  33. Lee, S., and S. Jang. 2013. Asymmetry of price competition in the lodging market. Journal of Travel Research 52 (1): 56–67.CrossRefGoogle Scholar
  34. Lieberman, W.H. 2003. Getting the most from revenue management. Journal of Revenue and Pricing Management 2 (2): 103–115.CrossRefGoogle Scholar
  35. Liu, T.M. 2014. Analysis of the economic impact of meteorological disasters on tourism: The case of typhoon Morakot’s impact on the Maolin National Scenic Area in Taiwan. Tourism economics 20 (1): 143–156.CrossRefGoogle Scholar
  36. Mahon, J. 2006. The role of physical planning in the development of coastal hotel plant in the face of natural hazards: A case study of the Caribbean SIDS. MSc dissertation, University of the West Indies.Google Scholar
  37. Mankiw, N.G. 2004. Principles of macroeconomics. Mason: Thomson South-Western.Google Scholar
  38. Montgomery, W.D., R.A. Baron, and M.K. Weisskopf. 2007. Potential effects of proposed price gouging legislation on the cost and severity of gasoline supply interruptions. Journal of Competition Law and Economics 3 (3): 357–397.CrossRefGoogle Scholar
  39. National Weather Service. 2018. Historical Hurricane Florence, September 12–15, 2018. https://www.weather.gov/mhx/Florence2018. Accessed 7 July 2019.
  40. Noone, B.M., and C.H. Lee. 2011. Hotel overbooking: The effect of overcompensation on customers’ reactions to denied service. Journal of Hospitality & Tourism Research 35 (3): 334–357.CrossRefGoogle Scholar
  41. North Carolina Department of Justice. 2019. Price gouging. https://ncdoj.gov/Consumer/Disasters-(1)/Price-Gouging.aspx. Accessed 24 July 2019.
  42. Olsen, M.D., J.J. West, and E.C.Y. Tse. 2008. Strategic management in the hospitality industry. Upper Saddle River, NJ: Pearson.Google Scholar
  43. Relihan, W.J. 1989. The yield-management approach to hotel-room pricing. Cornell Hotel and Restaurant Administration Quarterly 30 (1): 40–45.CrossRefGoogle Scholar
  44. Shih, C., and S. Nicholls. 2012. How do weather conditions influence leisure traffic? Evidence from Michigan and implications for climate change. Tourism Analysis 17 (4): 431–443.CrossRefGoogle Scholar
  45. Simpson, E. S. C., Weiner, J. A. (Eds.) (1989). The Oxford Encyclopaedic English Dictionary. Oxford Clarendon Press.Google Scholar
  46. Smith Travel Research. 2019. https://str.com/.
  47. Snyder, J. 2009. What’s the matter with price gouging? Business Ethics Quarterly 19 (2): 275.CrossRefGoogle Scholar
  48. Sutton, R.I., K.M. Eisenhardt, and J.V. Jucker. 1986. Managing organizational decline: Lessons from Atari. Organizational dynamics 14 (4): 17–29.CrossRefGoogle Scholar
  49. Taylor, T., and R.A. Ortiz. 2009. Impacts of climate change on domestic tourism in the UK: A panel data estimation. Tourism Economics 15 (4): 803–812.CrossRefGoogle Scholar
  50. YüKsel, S. 2007. An integrated forecasting approach to hotel demand. Mathematical and Computer Modelling 46 (7–8): 1063–1070.CrossRefGoogle Scholar
  51. Zwolinski, M. 2008. The ethics of price gouging. Business Ethics Quarterly 18 (3): 347–378.CrossRefGoogle Scholar

Copyright information

© Springer Nature Limited 2019

Authors and Affiliations

  1. 1.School of Hospitality Leadership, College of BusinessEast Carolina UniversityGreenvilleUSA
  2. 2.Premier Resorts & Management, Inc.Ormond BeachUSA

Personalised recommendations