Economic Analysis of Hotel Resort Fees

Mary W. Sullivan

This paper examines the costs and benefits of disclosing resort fees – which are per-room, per-night, mandatory fees charged by some hotels – separately from the room rate by reviewing the economics and consumer behavior literatures on drip pricing and partitioned pricing, two pricing practices used by online travel agents and hotels to disclose resort fees to consumers. Consumers and advocacy groups argue that the fees are misleading because they are not included in the room rate. Hotels argue that they provide resort services at a discount relative to the cost of purchasing the services individually, and that resort fees allow hotels to reduce the commissions paid to online travel agents. The analysis in the paper finds that separating mandatory resort fees from posted room rates without first disclosing the total price is likely to harm consumers by increasing the search costs and cognitive costs of finding and choosing hotel accommodations. The analysis finds that separating resort fees from the room rate without first disclosing the total price is unlikely to result in benefits that offset the likely harm to consumers.