A Model of Room Rentals in a Seasonal Hotel Illustrating Monopolistic Competition: Descriptive Approach

Abstract

This paper illustrates monopolistic competition with a novel model of hotel rooms for daily rental that has peak and off-peak demand periods. There are two types of hotels, hotel_k and hotel _L, each having linear total costs with absolute capacity limits. Hotels_K are static ef?cient, since they operate with low MC. Hotels _K open year-around and always at full capacity. Hotels_L are output ?exible since they operate with low FC. Hotels_L open in the peak-demand periods and shut down in offpeak demand periods. I prove mathematically two propositions with this model. Proposition I shows mathematically the conditions of investor indifference to choose between Hotels_Land Hotels_L . The signi?cance is to show a positive aspect of Hotels _L , its output ?exibility, that some may overlook. Proposition II shows mathematically the conditions that shifting consumption of room rentals from offpeak to peak will add to consumer surplus. The signi?cance is to show the importance of increasing consumption in the peak period for consumer welfare over the cycle even at the cost of decreasing consumption in the off-peak periods . These two proposition are intuitive and common sense.