Dynamics of agglomeration and competition in the hotel industry: A geographically weighted regression analysis based on an analytical hierarchy process and geographic information systems (GIS) data

Abstract

Research background: The effects of locating next to other establishments of equivalent activity is a decision with serious and far-reaching implications, not only from the point of view of location decisions but also with regard to competitive strategy, pricing, or promotion decisions. The literature provides evidence of the negative effects of being proximate to competitors (erosion of market share), but there are also benefits associated with the increased attraction of demand (attraction effect). This phenomenon is of particular interest in the case of hospitality, where hotel concentrations can be found around certain tourism resources, and is a crucial factor in hoteliers' decisions as they evaluate these contradictory effects. Purpose of the article: Drawing from the relevance that the confrontation between agglomeration and competition has in the hotel industry, our study aims to examine if this confrontation can be driven by geographical location and how both vertical and horizontal differentiation factors can unbalance it. Methods: Based on the use of geographical information systems and the estimation of a geographically weighted regression model with a wide dataset that includes 3,153 European hotels located in Spain, France and the United Kingdom. Findings & value added: We extend agglomeration and competition theoretical bodies related to location decisions by providing new findings about their simultaneous effect. Specifically, this study contributes to filling the gap regarding their combined effects on pricing and the conditions under which one prevails over the other. Results show that the role of geographical location and a hotel?s online reputation are more decisive differentiation factors than hotel category when explaining the asymmetry of the effects of agglomeration and competition.