Making Friends with Your Neighbors? Agglomeration and Tacit Collusion in the Lodging Industry

54 Pages Posted: 31 Jan 2011 Last revised: 29 Mar 2011

See all articles by Li Gan

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Manuel A. Hernandez

International Food Policy Research Institute (IFPRI)

Date Written: January 2011

Abstract

Agglomeration is a location pattern frequently observed in service industries such as hotels. This paper empirically examines if agglomeration facilitates tacit collusion in the lodging industry using a quarterly dataset of hotels that operated in rural areas across Texas between 2003 and 2005. We jointly model a price and occupancy rate equation under a switching regression model to endogenously identify a collusive and non-collusive regime. The estimation results indicate that clustered hotels have a higher probability of being in the potential collusive regime than isolated properties in the same town. The identification of a collusive regime is also consistent with other factors considered to affect the sustainability of collusion like cluster size, seasonality and firm size, and the results are robust to alternative cluster definitions.

Suggested Citation

Gan, Li and Hernandez, Manuel A., Making Friends with Your Neighbors? Agglomeration and Tacit Collusion in the Lodging Industry (January 2011). NBER Working Paper No. w16739. Available at SSRN: https://ssrn.com/abstract=1749898

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Manuel A. Hernandez

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

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