This gives the hotel a certain amount of influence over the market, it can raise prices without losing all the customers, owing to brand loyalty. The characteristics are almost exactly same as in perfect competition, with the exception of heterogeneous products and that monopolistic competition involves a great deal of non-price competition (based on subtle product differentiation). Easy entry of new firms in the long run.
The lodging industry being a monopolistic competitive market has the following characteristics:
In the short-run, the monopolistically competitive hotel can exploit the heterogeneity of its brand so as to reap positive economic profit, this is a rate of return greater than the rate required to compensate debt and equity holders for the risk of investing in the hotel. As such a Holiday Inn Express product, which is different (or at least perceived to be different) from all other brands' product like Days Inn is available from a single producer.Ĭonsumers have a clearly defined preferences and sellers attempt to differentiate their products from those of their competitors, the goods and services are heterogeneous. Unlike in perfect competition, monopolistically competitive firms have products that are not perfect substitutes. The market structure of lodging industry is 'Monopolistic competition'- market structures in which there are many firms selling differentiated products, there are few barriers to entry.Ī monopolistically competitive firm acts like a monopolist which means that the firm is able to influence the market price of its product by altering the kind of the product being offered.
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