<p>Hotels already do dynamic pricing where they charge more/less depending on what the demand is.  Research shows that already virtually all hotels (about 90% in Europe according to estimates of <a href="https://www.sciencedirect.com/science/article/abs/pii/S0278431911000958" rel="nofollow noreferrer">Abrate et al 2012</a>) already do dynamic pricing, where the price depends on what the demand is at a particular timespan.</p>
<p>Empty hotel room at a particular date is perishable commodity and even with dynamic pricing it is impossible to 100% match demand to supply in real life.</p>
<p>Moreover, demand is not necessarily linear it is possible for demand for hotel rooms at a particular hotel to be 100 rooms when price is in range \$300-\$349 and 0 when price is \$350. Real life demand can be stepwise or well behaved in some price range and not in other ranges.</p>
<p>Furthermore, depending on the nature of local hotel competition, individual hotel cannot just look at its own occupancy when deciding on price, but it has to take into account pricing decisions by competition as well. In some cases its possible to end up with too low price and excess demand, given that hotels can't easily expand supply of rooms.</p>

CC BY-SA 4.0
2024-01-21T08:44:24.780Z
"*Moreover, demand is not necessarily linear it is possible for demand for hotel rooms at a particular hotel to be 100 rooms when price is \$300 and 0 when price is \$350.*" This phenomenon is also possible with linear demand; I believe you mean to write that the demand may be strongly elastic.
Giskard
CC BY-SA 4.0
2024-01-21T11:20:18.907Z
@Giskard no I meant to say non-linear because in my mind I had example of stepwise demand function, but it’s true that the numbers I choose would be possible even with linear demand. I will try to reword it a bit
1muflon1
CC BY-SA 4.0
2024-01-21T19:06:51.120Z
You still write linear when you mean not continuous.
Giskard
CC BY-SA 4.0
2024-01-21T21:12:01.473Z
@Giskard I think you are mistaken. Function is continuous if you can draw it without lifting a pen. A step wise demand can be drawn that way since at every end of a step you can put vertical line. Linear demand is demand that can be described by equation of a line y=bx+a.
1muflon1
CC BY-SA 4.0
2024-01-22T08:01:51.380Z
Stepwise functions are continuous? What is their value at the vertical line?
Giskard
CC BY-SA 4.0
2024-01-22T12:34:22.120Z
@Giskard at a vertical line you can have vector valued function that gives you the range between two steps. Also I agree that it would probably be simpler if it’s just a discontinuous function but in most texts it’s plotted continuously
1muflon1
CC BY-SA 4.0
2024-01-22T13:08:48.600Z
I mean you are talking about set-valued functions and upper hemi-continuity while writing the low-level "*Function is continuous if you can draw it without lifting a pen.*" All the while you use the fact that there is a sudden drop in demand. And again, I want to clarify that there are plenty of non-linear functions that do not have a sudden drop, so "non-linear" does not imply this, and OP does not include the word linear, so there is not really any reason to include something like that. I still think you did mean that demand was strongly elastic, perhaps 'infinitely'.
Giskard
CC BY-SA 4.0
2024-01-21T01:49:46.513Z
2024-01-21T11:23:04.370Z
2024-01-21T11:23:04.370Z
1muflon1
<p>Hotel rooms routinely book up months in advance of anticipated high demand. Why don't they raise their prices so that the last few rooms sell shortly before they're occupied? Even if they can't correctly anticipate the size of the demand, they could adapt: every time a room books, they raise the prices slightly for the remaining rooms for the same time period.</p>

<supply-and-demand>
Why don't prices for hotel rooms rise to fully match demand?
TESch
# Why don't prices for hotel rooms rise to fully match demand?

(Asked by: username_0 on 2024-01-20)

Hotel rooms routinely book up months in advance of anticipated high demand. Why don't they raise their prices so that the last few rooms sell shortly before they're occupied? Even if they can't correctly anticipate the size of the demand, they could adapt: every time a room books, they raise the prices slightly for the remaining rooms for the same time period.

**Tags:** supply-and-demand


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## 1 answers

### Answer by username_1 on 2024-01-21. Score: 1

Hotels already do dynamic pricing where they charge more/less depending on what the demand is. Research shows that already virtually all hotels (about 90% in Europe according to estimates of [Abrate et al 2012](https://www.sciencedirect.com/science/article/abs/pii/S0278431911000958)) already do dynamic pricing, where the price depends on what the demand is at a particular timespan.

Empty hotel room at a particular date is perishable commodity and even with dynamic pricing it is impossible to 100% match demand to supply in real life.

Moreover, demand is not necessarily linear it is possible for demand for hotel rooms at a particular hotel to be 100 rooms when price is in range \$300-\$349 and 0 when price is \$350. Real life demand can be stepwise or well behaved in some price range and not in other ranges.

Furthermore, depending on the nature of local hotel competition, individual hotel cannot just look at its own occupancy when deciding on price, but it has to take into account pricing decisions by competition as well. In some cases its possible to end up with too low price and excess demand, given that hotels can't easily expand supply of rooms.

> **Comments:**
> **username_2**: "*Moreover, demand is not necessarily linear it is possible for demand for hotel rooms at a particular hotel to be 100 rooms when price is \$300 and 0 when price is \$350.*" This phenomenon is also possible with linear demand; I believe you mean to write that the demand may be strongly elastic.  
> **username_1**: @username_2 no I meant to say non-linear because in my mind I had example of stepwise demand function, but it’s true that the numbers I choose would be possible even with linear demand. I will try to reword it a bit  
> **username_2**: You still write linear when you mean not continuous.  
> **username_1**: @username_2 I think you are mistaken. Function is continuous if you can draw it without lifting a pen. A step wise demand can be drawn that way since at every end of a step you can put vertical line. Linear demand is demand that can be described by equation of a line y=bx+a.  
> **username_2**: Stepwise functions are continuous? What is their value at the vertical line?  
> **username_1**: @username_2 at a vertical line you can have vector valued function that gives you the range between two steps. Also I agree that it would probably be simpler if it’s just a discontinuous function but in most texts it’s plotted continuously  
> **username_2**: I mean you are talking about set-valued functions and upper hemi-continuity while writing the low-level "*Function is continuous if you can draw it without lifting a pen.*" All the while you use the fact that there is a sudden drop in demand. And again, I want to clarify that there are plenty of non-linear functions that do not have a sudden drop, so "non-linear" does not imply this, and OP does not include the word linear, so there is not really any reason to include something like that. I still think you did mean that demand was strongly elastic, perhaps 'infinitely'.  

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