Shrouded Prices and Firm Reputation: Evidence from the U.S. Hotel Industry

58 Pages Posted: 17 Apr 2017

Date Written: Novemeber 16, 2016

Abstract

Firms in many industries engage in price obfuscation – tactics that intentionally make prices more difficult for consumers to discern. While existing research has focused on the short-term financial gains that motivate firms to obfuscate, reputational concerns may at least partially counteract these incentives if consumers punish deceptive firms via loss of loyalty in future transactions and/or publicly observable negative feedback. This paper addresses the latter possibility, exploring the impact of shrouded surcharges on firm reputation in the U.S. hotel industry. Using data collected from two major online travel sites, I exploit differences in surcharge disclosure across booking channels to identify the causal effect of hidden “resort fees” on traveler ratings. I find that hidden fees decrease ratings by roughly 0.15 points (on a rating scale ranging from 1 to 5). The magnitude of this effect varies based on firm characteristics, and this variation is consistent with observed heterogeneity in resort fee adoption patterns: when the expected punishment is more severe, firms are substantially less likely to adopt shrouded surcharges. Results shed light on the extent to which reputational mechanisms may act as a check against price obfuscation and other similar practices intended to exploit boundedly rational consumers.

Keywords: Obfuscation, Reputation, Disclosure, Shrouded Prices, Competition, Behavioral Economics

JEL Classification: L1, D8

Suggested Citation

Chiles, Bennett, Shrouded Prices and Firm Reputation: Evidence from the U.S. Hotel Industry (Novemeber 16, 2016). Available at SSRN: https://ssrn.com/abstract=2952950 or http://dx.doi.org/10.2139/ssrn.2952950

Bennett Chiles (Contact Author)

Columbia Business School ( email )

3022 Broadway
Uris Hall, Office 703
New York, NY 10027
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
176
Abstract Views
922
rank
201,996
PlumX Metrics