But the instability of hotels seems especially pronounced. An accounting of the cyclical behavior of the U.S. lodging industry comes from William C. Wheaton and Laurence Rosoff of the Massachusetts Institute of Technology. Economic expansions spur both business and leisure travel, while recessions cause firms to tighten travel budgets, and individuals to curtail vacations. By contrast, room prices and new construction move in patterns that bear little connection to short-term demand. In other property markets, rents respond sharply to changes in occupancy, and construction follows not long after.
Hoteliers adjust room prices more slowly for several reasons.
Customers tend to return to hotels they like because it's so costly to search for alternatives, but they may reconsider if prices have risen since the last visit. Customers who need to plan ahead, such as corporate groups, dislike volatile prices. And rapid price adjustments may hurt a hotel's reputation for quality. Wheaton also notes that hoteliers are reluctant to quickly adjust prices because pricing is so complicated. A given room may have five or more rates, depending on the type of customer and when the room is booked.