Determining Room Rates in Sweden - A Hedonic Prices Approach of the Stockholm Hotel Market

Abstract: Based on the hedonic pricing method, this paper investigates the way in which room rates are determined. I identify ten significant room rate determinants in the Swedish capital city of Stockholm. Two separate models for double rooms are estimated; one for the business week and one for the weekend. Initially, nineteen variables were considered, but since nine of them were shown to be jointly redundant, the model was narrowed down. Some results coincide with previous research by Thrane (2006) and Chen and Rothschild (2010). For example, centrally located rooms are much more expensive (28.4 percent during business week and 38.0 percent during the weekend), ceteris paribus. On the other hand, some variables have previously shown to be significant, nevertheless turned out to be insignificant in the case of Stockholm. Examples of such variables are the availability of a minibar or a flatscreen TV. Multicollinearity was not shown to be an issue, however, both models suffered from omitted variables. While the lion's share of all price variations could be described by the model(s), some significant variables were not captured. Even so, the findings of the paper should be valuable especially for those operating in the Stockholm hotel industry as useful tools are provided. Hence, the paper concludes with a discussion regarding some possible policy implications.