Clustering and hotel room prices in Dubai

Abstract

In this article, we study the influence of the room properties, hotel amenities, hotel location, and, more importantly, the characteristics of hotels in the surrounding area on the prices of hotel rooms. The effects of different determinants are estimated using the hedonic price model for a cross-section of 250 hotels in Dubai. In addition to the typical characteristics of hotels and hotel rooms such as hotel amenities, star rating, and room size, we include location-specific characteristics such as accessibility to public transportation, airport, and, more importantly, clustering variables to capture the effects of local competition and spillovers from surrounding hotels. Our results indicate significant and strong effects of accessibility to attractions, transportation, hotel’s star rating, and room size, as expected. Our estimations also indicate that local competition reduces the room price, and local quality spillover increases the room price, and both effects are predominantly limited to the hotel’s immediate surroundings. Our estimations indicate that having one more hotel in the immediate surroundings decreases the room price by about one percent, and an increase in the average quality of the hotels in the immediate surroundings by one star rating increases the room price by more than 20%.

Focal Points in Recent Tourism Price Research

“…type of accommodation, star ratings, rooms and their size, pool, outdoor sports) to amenities (such as parking, Wi-Fi) (e.g. Arzaghi et al 2023;Mitsis, 2023;Fearne, 2022;Somphong et al, 2022) and host attributes when examining sharing economy accommodation. Wang and Nicolau (2017) examined 25 Airbnb price determinants classified into five categories (host characteristics, site and property attributes, amenities and services, rental rules, and online reviews) to understand how they relate to the price.…”

Rating vs. Reviews: Does official rating capture what is important to customers?

“…Alternatively, a number of studies consider hotel rooms within the framework of hedonic models (see Ref. [ 22 ] and references therein). These models center around the existence of certain features at a hotel to determine its value to potential customers.…”

“…These variables capture the number of hotels in the immediate vicinity of the hotel and their average quality. The first variable captures local competition [ 22 , 63 , 64 ]. The number of hotels within 250 m indicates the severity of local competition.…”

“…The number of hotels within 250 m indicates the severity of local competition. The second variable captures the potential effects of localization economies and positive spillovers [ 22 , [65] , [66] , [67] ]. The quality of hotels in the immediate vicinity indicates positive localized spillovers (externalities) because they provide easy access to high-quality services (e.g., restaurants, bars, and entertainment).…”

“…Official ratings aim to provide an objective, consistent, and standardized assessment of hotel quality and experience to potential customers. At the same time, official ratings could influence the commercial success of a hotel [ 4 , 22 ] and could also improve customer satisfaction. Therefore, most travelers still rely on official ratings as a measure of quality rather than spending a considerable amount of time sifting through the endless number of reviews.…”