Agglomeration and competition dynamic effects on hotels pricing strategies in Venice

Many studies highlight the significance of agglomeration and spatial competition as factors influencing dynamic pricing strategies in hospitality. Our research advances the literature by examining the interaction between agglomeration benefits and competition drawback along the booking curve. To this aim, we propose a two-step Structural Vector Autoregressive (SVAR) approach that accounts for time-variant factors such as daily seasonality, room quality, and rate fences. Our findings reveal a non-linear “U-shaped” pattern of negative competition effects along the booking window, with stronger impacts observed in last-minute and very early bookings. The positive externalities associated with agglomeration increased as the advance booking period shortened. Even in times of crisis, such as during COVID-19, clustering continues to exert a slightly positive effect on rates, particularly for last-minute bookings. Overall, our research contributes to the literature on hotel revenue management and underscores the importance of integrating spatial factors into dynamic pricing models to support decision-making. • Rates follow a stochastic dynamic process driven by seasonality and the advance booking period. • A (latent) time-invariant price component is filtered through a SVAR approach. • Negative competition effects are “U-shaped” across the booking window. • Positive agglomeration externalities are present both before and during the pandemic. • The weight of positive externalities strengthened as the advance booking period shortened.