Price formation and market segmentation in seaside accommodations

This paper analyses key factors that determine holiday accommodation prices in Ibiza (Spain), one of the major tourist destinations in the Mediterranean. The paper argues that prices depend on hotel category, accommodation regime and geographical location. The companies that offer accommodation constitute a market dominated by monopolistic competition and characterized by a progressive product differentiation. Using a multiple regression model, tangible characteristics of each establishment are used as explanatory variables of price. In practice, we will attempt to operate with the minimum number of characteristics that give sufficient explanatory power.

► Price formation in a mass tourism destination.
► Importance of the hotels’ location.
► Monopolistic competition in the tourism market.
► Wide range of offers in a major tourist destination.