Working Paper: CEPR ID: DP9463
Authors: Pascal Courty; Wenyu Liu
Abstract: We study opaque selling in the hotel industry using data from Hotwire.com. An opaque room discloses only the star level and general location of the hotel at the time of booking. The exact identity of the hotel is disclosed after the booking is completed. Opaque rooms sell at a discount of 40 percent relative to regular rooms. The discount increases when hotels are more differentiated. This finding is consistent with static models of price discrimination. No support was found for predictions specific to inter-temporal models of opaque selling.
Keywords: intertemporal price discrimination; opacity; opaque selling; product differentiation
JEL Codes: L0; L15; L83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| opaque rooms sell at a discount of 40% (R33) | consumers are willing to pay a premium for the option to choose their preferred hotel (Z30) |
| opaque discount (D43) | hotel differentiation (Z30) |
| opaque discount is 12.2 percentage points lower in airport locations (L93) | location plays a significant role in product differentiation (R32) |
| opaque discount decreases by 13% as longest distance increases by one mile (L97) | area size is a critical factor in determining the opaque discount (R12) |
| opaque discount is higher in cities serving a larger set of traveler segments (R12) | cities catering to both business and convention travelers exhibit a higher opaque discount (R33) |
| no support for intertemporal price discrimination hypothesis (D15) | opaque room availability does not change over the last two weeks prior to the expiry date (C41) |