Booking in the Rain: Testing the Impact of Public Information on Prices

Quaderni - Working Paper DSE N° 1137

44 Pages Posted: 15 Nov 2019

See all articles by Paolo Figini

Paolo Figini

University of Bologna - Department of Economics; University of Bologna - CAST - Centre for Advanced Studies in Tourism

Simona Cicognani

Free University of Bozen-Bolzano

Lorenzo Zirulia

University of Bologna - School of Economics, Management, and Statistics

Date Written: October 30, 2019

Abstract

The key role played by public information in market economies is paramount. Yet, investigation on how prices are affected is hindered by intricate endogeneity and parametrization issues. This paper contributes to the literature by identifying and studying a case where public information is related to weather forecasts, in a sector (tourism) where meteorological conditions exogenously impact on both suppliers’ and consumers’ decisions, especially in leisure destinations. We first develop a theoretical model where forecasts affect demand and hence equilibrium prices in accommodation: an improvement in the weather forecast has a positive impact on the price, the effect being stronger the higher the level of accuracy of the forecast and the level of ex ante uncertainty in weather conditions. We then estimate an augmented hedonic price model where dynamic characteristics (typical of advanced booking strategies) are included together with information about weather forecasts. Consistent with the theory, we find that, ceteris paribus, good weather forecasts are associated to higher prices, the impact being larger the higher their level of accuracy and the higher the ex ante level of uncertainty in weather conditions.

Keywords: Information uncertainty, Bayesian model, Big Data, Pricing strategy, Exogenous quality, Hotels, Weather forecast, Hedonic price

JEL Classification: D80, D22, L83

Suggested Citation

Figini, Paolo and Cicognani, Simona and Zirulia, Lorenzo, Booking in the Rain: Testing the Impact of Public Information on Prices (October 30, 2019). Quaderni - Working Paper DSE N° 1137, Available at SSRN: https://ssrn.com/abstract=3481738 or http://dx.doi.org/10.2139/ssrn.3481738

Paolo Figini (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy

HOME PAGE: http://www2.dse.unibo.it/dsa/profile.php?id=33

University of Bologna - CAST - Centre for Advanced Studies in Tourism ( email )

Via Angherà 22
Rimini, RN 47922
Italy

Simona Cicognani

Free University of Bozen-Bolzano

Sernesiplatz 1
Bozen-Bolzano, BZ 39100
Italy

Lorenzo Zirulia

University of Bologna - School of Economics, Management, and Statistics ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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