Revenue management analysis with competitive sets

Abstract

Growing concerns about the integrity of the revenue per available room index—the lodging industry de facto performance measure—stem from previously published empirical evidence concerning the competitive set’s venerability and from management’s financial incentives to outperform the hotel’s competitive set. This study demonstrates the potential of the decision to include or exclude a hotel in, or from, competitive set averages to bias its performance index. The analysis shows that the bias potential is nonlinear and asymmetric in relation to the subject hotel’s revenues, and uses this revealed asymmetry to prove that when future relative performance levels are uncertain, exclusion tactics is preferred. Finally, the study demonstrates how the relative nature of the performance indicator, coupled with management potential opportunistic inclusion/exclusion competitive set tactics, are detrimental to the perceived desirability of co-opetition strategies.