Event driven pricing: gouging or merely profiting?

With the 2012 summer olympics little over 10 weeks away the Washington Post has an AP report on how the event is causing "nightmares" for consumers with "innkeepers charging Ritz rates for Fawlty Towers rooms — and they will get away with it."

Like most reports on event based pricing anywhere in the world the AP story is short on analysis and long on vacuous speculation. The article notes that "A limited hotel supply and unprecedented demand…. means that accommodation in the British capital — never a bargain to start with — is more expensive than ever this summer." That hotels in London like those in other gateway international cities like New York, Paris or Tokyo have significantly higher acquisition and operating costs is not factored in the report. Nor is the idea that demand for events, particularly one-off events, always exceeds supply in a free market like London or New York explored.

UK legislators like their cohorts elsewhere are not given to let facts come in their way of their judgment and lest they miss an opportunity to be seen on the side of the seemingly beleaguered consumer were quick to label it a "scandal of extortionate price rises". That there has thus far, not been a hint of violence or coercion on the part of the hoteliers nor any compulsion to rent those hotel rooms at those prices is immaterial.

Similarly, in Brazil government officials are fretting about the "high prices and low availability of hotel rooms in Rio de Janeiro during a high-profile United Nations summit scheduled for next month" and have gone so far as to ask the Mayor of Rio to urge hoteliers to lower their prices and, in a travesty of its use, even consider subsisdizing hotel rates to delegates from public coffers. Apart from causing hoteliers to raise rates even further it absurdly will feed off other nations' public coffers as most if not all delegates are public officials either from the United Nations or individual countries.

Closer to the present with four weeks to go Ukrainian officials have ordered hotels to lower prices for the European Championship in Soccer. It is unclear how that is to be achieved nor is there any evidence that it has kept football fans from planning on heading to the tourneys. Things are no different at the UEFA championship in Munich later this month where hotel room rates have shot up by one thousand percent.

Within the US, the recently concluded Super Bowl in Indianapolis spawned newspaper headlines that screamed price-gouging with a sports hospitality operator calling the prices "insane". Maybe for some but as the report noted "Hotel room prices are expected to rise, because this is a game of high rollers." And that is what sets apart these events from real price gouging as unfortunately occurs now and then including at a New York hotel during last year's hurricane Irene.

Ultimately as this perhaps controversial academic paper argues, price gouging even in extraordinary situations could well be justified as the ethics and morality of real price gouging is a matter that needs further analysis and its understanding by sellers, consumers and law makers remains hazy at best.



Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.