Explaining hotel breakfast pricing under spatial heterogeneity and competitive environments

The literature on pricing of additional components to the base service, e.g., add-ons, is fairly scant, although these items are often the basis on which a pricing strategy is developed. In service industries such as hospitality, breakfast is a service component that attracts customers, featuring as part of the service or in addition to it. In particular, it is the focus of active strategies to attract customers or build customer loyalty, in the form of offering additional services at a low price or even free of charge. Given the limited interest of the literature in understanding the price formation of additional components, or add-ons, this study attempts to explain how hotel managers set the price of breakfast using factors related to hotel strategy and reputation but also considering competition and location. Specifically, a novelty of this model is to incorporate geographic location to explain the price of an add-on. Using a sample of 2,111 hotels from Spain, France, Italy and the United Kingdom, we estimated a geographically weighted regression with a set of explanatory variables. Our findings show that while category and online reputation act as filtering criteria and allow hoteliers to set higher prices, horizontal differentiation can act both as a stimulus and a screening tool depending on the hotel location. Similarly, in some locations there is an agglomeration effect derived from the competitive environment that allows hoteliers to set higher prices while in other locations there is a competition effect due to the pressure of greater competition that leads to lower prices.