How demand uncertainty and market concentration affect long-term price instability

The object of this paper was to investigate the long-term influences of demand uncertainty and market concentration on price instability in the hotel industry. We applied 1996–2008 price and room revenue data collected by Taiwan's Tourism Bureau to test the following two hypotheses: (1) demand uncertainty is negatively associated with price instability in the hotel industry; (2) the market concentration is negatively associated with hotel price instability. We constructed a two-stage price instability model and the estimate results produced the following two findings: First, the uncertainty in room demand significantly contributed to the price instability. Second, the effects of market structure on price instability were heterogeneous across different levels of price instability distribution. Notably, when the distribution of price instability moved from lower to higher quantiles, the relationship between market concentration and price instability altered from positive to negative.