The Wackiness of Hotel Pricing

As far as I can hotel, there are only two possible prices for services at a hotel:

a) 5 times market price, or

b) Free.

And that's it. Nothing is charged at market pricing, and nothing is charged at marginal cost either. It's just cross-subsidisation up the wazoo.

To make things weirder, the list of which stuff goes into the 'free' category and which stuff goes into the 'massively expensive' category seems to vary widely from hotel to hotel.

In some places, internet is free. In others, it's $15 a day. Breakfast is either complimentary, or $30. Parking is either free or $30 per night. The fitness centre is either free or $20 per day. etc.

Personally, I'd gladly trade the crappy hotel room coffee and widescreen TV (both nearly always complimentary) for free internet, but of course that option isn't on offer.

When wifi first became a thing, I was very much hoping that it would be put in the 'TV' category of 'essential services that every room gets gratis'. This battle for social norms seems to be ongoing, currently in the trench warfare stage where neither side is making any particular progress.

A lot of this seems to be just weird mental accounting and salience. Some places now charge a single, mandatory 'resort fee' to cover all the incidentals. Of course, if it's a mandatory fee, you could just add it to the cost of the room and make it all truly free. My only guess as to what's going on here is that this is a ruse to fool price comparison websites into displaying a lower price than the total value.

For all the IO models we have, sometimes it just seems like the best working model is 'companies fool around with pricing and charge as much as they think they can get away with'. This is probably a crude version of some of the IO models, like the Gabaix and Laibson model.

Pricing is weird.