Chapter 122 Question 110

Why are hotels in host cities completely unavailable on Super Bowl weekend? (Richard Taylor, Harry Chen) The Super Bowl is America's annual entertainment event.Every year, on the weekend before the Sunday game, hotels in the host city are completely out of room.Some speculated that the market-clearing price for the room on Saturday night could be in the hundreds of dollars.While some hotels do charge more on Super Bowl weekend, almost none charge more than $500, and most charge much less.Why don't hotels in host cities just raise room rates? While their failure to do so seems to be leaving hot money on the table, there seem to be other explanations.One is that the surge in demand far exceeds the hotel's estimates, as is sometimes the case when a new model hits the market and sells out at the manufacturer's suggested retail price.In the case of pre-Super Bowl hotel rooms, this explanation obviously doesn't make sense. After all, hoteliers are well aware that there will be a surge in demand for rooms from travelers.Because this happens every year, the location of the game (unlike a major baseball game) is determined in advance.

It's also possible that hotels don't want to offend customers by charging unreasonably high prices.But why should hotels care what their customers think?If people feel the market clearing price is too high for their liking, they can refuse to pay the bill.With so many frustrated fans on the street who can't find a room, the hotel is pretty sure they can sell rooms even if people feel the price is unfairly high. However, charging high prices on such occasions may be an aggressive strategy.Many consumers may reluctantly pay the market-clearing price, only to later resent the hotel for charging such a high price.The response is deadly, especially for hotel chains that offer rooms not just on Super Bowl eve but at other times, in other cities.Anyone who thinks the Miami Hilton rip-offed him during the Super Bowl in February will probably not stay at the Hilton when he travels to St. Louis in March.

This explanation can also be applied to price anomalies in other fields.For example, a popular restaurant knows that there will be a greater demand for seating on a Saturday night, and if it is served at normal prices, it will be outnumbered.But restaurants have to fill up on days other than weekends.They figured that if customers felt ripped off on a weekend night, they could go to another restaurant the following Tuesday.