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Conditional Agglomeration Externalities in Lodging Markets

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Journal of Hospitality & Tourism Research: The Professional Journal of the Council on Hotel, Restaurant, and Institutional Education

Published online on

Abstract

Citing the intense competition among products of similar quality, studies to date have largely advocated for the favorable effects of differentiated agglomeration on hotels. However, limited evidence also suggests that undifferentiated hotels may also have an incentive to agglomerate for favorable interactions such as resource and information sharing, heightened demand, and demand spillover. Under the framework of bounded price competition this study hypothesizes that for hotels agglomeration effects may be dependent on market demand, whereas undifferentiated competition may also create desirable externalities. Using data from the Texas lodging market for the year 2010, the current study tests the hypotheses and finds significant evidence of conditionality, in which undifferentiated agglomeration externalities can be more favorable on the operating performance of hotels. Implications for practitioners and suggestions for future research are discussed.