The Agglomeration Conundrum: How Co-location Helps Some Hotels and Hurts Others

This report summarizes the RevPAR benefits for hotels that locate in various types of competitive clusters, using data from 14,995 hotels and controlling for numerous demand-shaping factors (e.g., number of rooms, chain affiliation, location, population, and number of retail and dining establishments). Our study found that hotels that locate in close proximity to higher segmented hotels (e.g., economy hotels with upscale hotels) benefit without making similar product and service investments themselves. Alternatively, co-locating with a high percentage of hotels in lower product segments (e.g., upscale hotels with economy hotels) reduces performance for higher segmented properties. These effects are magnified by the degree of strategic difference between the focal hotel and the central tendency of the cluster. Being different amplifies the benefit for hotels with a lower-cost orientation. For highly differentiated service providers, the greater the strategic distance from the cluster the more co-location can diminish revenues