Hotel rate price gouging during snowstorm

Michael Giberson

Or maybe I should title this post, “Hotel charged peak prices during peak demand period,” or better still: “Hotel price gouging promotes public safety.”

A Sea-Tac Airport area hotel raised its rates dramatically as it filled up during a snowstorm one night last month, and several patrons were shocked by bills from almost $275 to $465 the next morning. The natural question is what price the shocked patrons thought they had agreed to; but note on the night in question the hotel sign indicated rooms available at $53 and up. ($465??? That’s a lot of “and up.”) One potential customer asked about the rate in advance and decided to drive home through the storm rather than pay the price asked.

Even though Washington has no anti-price gouging law on the books, such price increases can be bad for a business’s reputation. But maybe it shouldn’t be bad for the hotel’s reputation: Price gouging in these circumstances probably promotes safety.

The story from KING5.com, first from two weeks ago: “Airport hotel rates jump during snow storm

Puyallup resident Jason Anderson found a room at the Ramada Inn next to the airport, but you probably wouldn’t call him lucky. He saw a Ramada ad for $53. He didn’t know until he signed the receipt that he was charged $274.36.

“I couldn’t believe that it was nearly $300 for one night,” said Jason.

“I was just thinking they’re taking advantage of people,” said Meegan Anderson, Jason’s wife.

Ramada’s manager says charging that much, for what is normally a $60 to $80 room, is standard when the hotel fills up.

And then more recent fall out, also from KING5.com: “Guest takes hotel to court for big snow storm bill“.

The guest in question is a law student who was among the hotel’s patron the night of the storm. The hotel has refunded him his bill for the night, though that may not end the complaint.

Still it is possible that the practice is profit-increasing for the hotel, even with complaints and some refunds. Sure, these unhappy consumers won’t be back and a few potential customers may remember the news stories next time the weather gets bad. The hotel will probably still fill up with other weary travelers, many of whom will be shocked by their bills the next morning.

It is also possible that the peak pricing practice is efficiency-enhancing and safety-promoting. Consider if state laws limited the hotel to charging no more than 10% over the pre-snowstorm price, so about $90. Imagine two kinds of weary travelers on the road: “local” travelers contemplating another hour driving in the snow and who know the area well enough to locate other nearby hotels, and “distant” travelers facing a four hour trip and unfamiliar with the area. It is reasonable to suspect that at the capped price more of the hotel rooms will be filled by local travelers – those local travelers not deterred by a $90 price but at least some of whom would be deterred by a $275 price. The means a capped price would leave more distant travelers out in the cold, on the snowy roads, either making the long trip home or traveling unfamiliar streets trying to find some other price-capped hotel room during the period of surprise high demand.

On the other hand, letting the price rise will see more local travelers out in the cold, either making the one-hour trip home or searching somewhat familiar roads for a cheaper hotel room, making room available at the convenient hotel for the “distant” travelers who would otherwise face a riskier four-hour trip home.

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5 thoughts on “Hotel rate price gouging during snowstorm

  1. I think it’s worth noting that the “efficiency-enhancing and safety-promoting” features of the peak-pricing practices are only effective when, in considering staying at a hotel, travelers are aware that they will be charged peak prices. While travelers probably should inquire about rates, in this case I believe the hotel should have made it clear that peak prices were in effect.

  2. Most hotels, in my experience, post maximum rates on a card on the inside of the door to the room. While this rate may not be charged during periods of low demand, it is available to be charged during periods of high demand. This includes not only snow storms, hurricanes, etc. but also major sporting events. Even in Delaware, OH room rates go up for the Little Brown Jug. Ohio State home football games also tend to drive metro-Columbus hotel rates.

  3. John Glenn brings up a point worth mentioning. Obviously if the hotel was misrepresenting its rates then clearly the efficiency and safety effects noted above won’t happen (since arriving traveler expect a low rate and local travelers are not rationed away). And apparently, given the consumer reactions reported, at least some consumers were not aware of the price they would be charged and so the efficiency/safety effects are reduced.

    I guess I should favor prominent peak demand hotel pricing for such situations in order to enhance the efficiency and safety results.

  4. Mike,

    Anytime one checks in at a hotel, he or she is presented with a piece of paper to sign which includes the rate charged for the room, unless they pay in cash in advance. Failure to read the price before signing for the room is hardly a defense.

  5. I agree with Ed. I have never checked into a hotel without asking “how much is a room?” If you don’t ask, you obviously don’t care about price and would probably pay anything. It’s a little surprising to me that people are surprised in the morning by their bill, even if the sign said “$53-and-up”. Ignorance is not a defense.

    Another bonus of peak pricing is freeing up supply for those who want it. If prices were capped at $90, a family of five might spring for 2 rooms. But with a price of $250 you can bet the kids would all be sharing a bed, leaving one extra room for someone who wants it.

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