Question

Background
Hotel One is one of the two hotels serving Dayville, a small town in the US Midwest. Fifty percent of its customers are out-of-town visitors to the local college, 30 percent are visiting Dayville for business purposes, and the remaining 20 percent of Hotel One’s customers are leisure travelers. The hotel is within one mile from campus, approximately four miles from the city center, and eight miles from the airport. It is easy to reach by car, taxi, or city bus. You are a manager of Hotel One. Your facility consists of 150 rooms, all of which are standard rooms with two double beds. Your only competitor in Dayville, The Other Hotel, has fewer rooms (100), but 20 of their rooms are luxury suites with king beds and a sofa couch (the other 80 are standard rooms with two double beds). This is the extent of the information provided to you at this point.

Assignment
In order to better understand your unit’s operating environment, you are asked to provide your estimate of the demand equation that would account for various factors that affect your customer traffic. This will be done by using regression techniques. The first step in estimating a demand equation is to determine what variables will be used in the regression. Please provide detailed answers to the following questions:
1. What do you think should be the dependent variable in your demand equation? What units of measurement for that variable are you going to adopt? Please provide a detailed explanation for these choices. 2. Please request information about up to five independent (explanatory) variables for your demand equation. For each variable you request, (i) provide reasons why you expect it to be important for your analysis and (ii) explain the expected sign of the relationship between the proposed independent variable and your proposed dependent variable. 3. Show the exact demand equation you are proposing to estimate. 4. List at least three other variables that you considered as independent (explanatory) variables in the regression, but chose not to include. Why did you choose not to include them?

Answer 1

In the situation as mentioned, the dependent variable would be the conditions of the rooms available in the hotels. It will be this condition of the hotels that will attract the consumers to stay in. Another dependent variable would be the conditioning of the advertisements that would attract the consumers to choose between the two hotels.

There could be many independent variables on which the demand equation may be dependent upon. Upon such other independent variables, some of the critical variables could be:

1. The weather conditions in Dayville, which will largely impact the choice of the consumers in choosing this destination for spending their holidays and free off time.
2. The price conditions of the hotels will play a critical role in determining the choice of the consumers as the consumers will definitely want to choose the hotel that best fits in to their pocket capability as long as they also satisfy their requirements.
3. Another critical independent variable would be the communication to the hotels and the mode of transportation available for the communication. The consumers would choose in the hotel which is best reachable.
4. Another important variable is the behavior of the hotel owners and the staff. This is a very important factor contributing to the decision making of the consumers. The consumers are best suited to choose between the hotels which offer them the best service.
5. Yet another condition that would determine the palatability of the hotels would be the facilities that are provided by the hotels in accordance with the hotel rooms. The services and facilities play a very important in determining the choice of the consumers.