In the News

Interaction of Supply and Demand | Surging Demand and Room Prices in London

Jim Riley

13th September 2022

So many people want to stay in London during the upcoming ceremonials to mark the passing of Queen Elizabeth that demand is far outstripping supply.

The consequence? Significant percentage rises in hotel room rates - assuming you can find one.

Thinking about this in terms of those supply and demand diagrams, what is happening is that demand is increasing dramatically, but hotel room supply remains the same. You can't suddenly add new hotel rooms. So the higher demand leads to a higher equilibrium price for hotel rooms.

As the Guardian reports, hoteliers are set to benefit from exceptionally high occupancy (the measure of capacity utilisation in the hotel industry) and sky-high prices.

It's hard to escape the feeling that some hotels are "price gouging". This is what happens when occurs when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair.

Presumably the owners of AirBnB rooms are also benefitting from the same change in demand.

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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