Dan Hill asks

by on June 27, 2006 at 4:59 pm in Economics | Permalink

Why does the liklihood of free internet decrease as the hotel price increases?

My answer: The more expensive the hotel, the more likely it will have many business travelers.  Those people are less price sensitive, especially for add-ons.  The greater dispersion of valuations also increases the incentive to price discriminate and, in essence, charge them a higher rate.  If Internet service is averaged into the basic price, Internet users receive an implicit discount.  Why offer that discount to your business travelers?  Steve Landsburg wrote a short piece on this for Slate.

Here is Dan’s original question.

1 Jake June 27, 2006 at 6:31 pm

Is there any empirical backing to the initial claim, or just a number of anecdotes?

2 Geoff June 27, 2006 at 6:40 pm

I think this might be overthinking things. Isn’t the simpler answer that nicer hotels don’t need additional services to attract customers, but that cheaper hotels have to offer this type of perk to provide a reason to stay there (since they don’t differentiate themselves based on quality)?

3 BillWallace June 27, 2006 at 7:19 pm

Reading all the past history, I thought this question was answered more convincingly in the comments of the previous post. The more expensive hotels have a much higher proportion of business travelers on expense reimbursements who are going to be myopic customers where no one will say $20 for internet is stupid.

Best Western customers are more likely to be families and other price sensitive customers who will laugh in your face at $20.

4 Gary June 27, 2006 at 9:16 pm

It’s not the concentration of business travelers — in fact chains that are geared towards business travelers like Hilton Garden Inn, Marriott Courtyard, and Four Points tend to make wireless a no cost item as a brand standard. It’s the cost conscious business traveler that gets the mid-priced chain with no-cost add ons like internet and breakfast.

5 Doc McClenny June 28, 2006 at 1:51 pm

I work for a Fortune 50 company that has a hard rule that employees will not be reimbursed for internet access. This tends to push us toward more midpriced hotels, that have free internet access.

Not sure if this was the original intent, but it (indirectly) saves the company a ton of money.

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