In the News

Price Mechanism in Action - London Hotel Prices Soar!

Geoff Riley

12th September 2022

The Guardian reports that hotel prices are rising very quickly in the run up to the Queen’s state funeral. This is an excellent example of the price mechanism in action.

Price Mechanism in Action - London Hotel Prices Soar!

Hundreds of thousands of visitors to London for the State Funeral are prompting many hotels and hotel chains to raise their prices. The available supply of hotel rooms is essentially fixed in the short term. So, when there is a surge in demand, available rooms are quickly bought up. Hotel owners can raise prices because many consumers are willing and able to pay more. This helps the hotels to sell any spare rooms and make higher revenues & profits.

The percentage of rooms sold daily in London was climbing above 80% from 2008 through to 2019 but the hotel sector was then hit hard by the pandemic and subsequent lock-downs.

The pandemic had a big effect on average room prices for London hotels. They dropped from £153 in 2019 to £99 in 2020 before recovering a little in the last two years. The continued low level of in-bound tourists has been a key factor.

Little wonder that hotels – from a commercial perspective – are looking to cash in on demand for rooms at the time of the state funeral.

Graham Watson comments:

The notion of surge pricing is an easy concept to grasp - as demand rises, you'd expect prices to rise. However, if it's a dramatic rise - often precipitated by unexpected events - it's often called surge pricing.

However, it's also something that's resented by consumers - and it will be interesting to see the extent to which those hotels that have sought to increase hotel prices before the Queen's funeral are going to see their brand image tarnished and a drop in their long-term profit.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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