Elasticity of supply reduces hotel price spikes

Major sporting events can substantially boost demand for hotel rooms and, given the difficulty of building new hotels on short notice, lead to price hikes and consumer complaints about price gouging. As I wrote four years ago, “Super Bowls usually produce price gouging complaints,” but the complaints were especially high that year given the selection of Indianapolis, a relatively smaller market, to host the game.

Of course, as I noted then, rooms to rent are not in perfectly inelastic supply as non-conventional spaces from spare rooms to whole houses become available at a price. The rise of Airbnb has simply greased the wheels of non-conventional supplies as noted in a number of news stories from the last several months:

And by “greased the wheels” I mean “used technology to match willing seller with willing buyer and facilitate a transaction among strangers.” Hotels have been a little slower to use city politics to come after Airbrb than taxi companies were in going after Uber and Lyft, but they’re catching on to the challenge the internet brings to their business.

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One thought on “Elasticity of supply reduces hotel price spikes

  1. Can non economist like me get confused with the use of supply when it seems that it refers to demand? From the WSJ comentary “Demand, Not Supply, by VERNON L. SMITH and LYNNE KIESLING, I got the inside that the huge problem of electricity is demand elasticity. The difference might be old hotel chains on supply and airbnb patforms on elasticity on the demand side. Please clarify!

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