Liquidity Traps in Hotel Revenue Management during the Pandemic and Actions Taken by Hoteliers

Abstract

During the COVID-19 pandemic period from March 2020 to September 2022 in Japan, the hotel revenue management mechanism through dynamic pricing for room revenue maximization did not work because of a lack of traditional room demand regardless of price level. This situation resembles a liquidity trap in monetary policy in the Keynesian economics world, where an interest rate drop does not stimulate investment volume. In this situation, hotel managers need to generate revenues with other methods and/or business models for survival rather than mere dynamic pricing. This research demonstrates that there was a liquidity trap in hotel revenue management where a drop in the room rate did not cultivate room demand during the pandemic in the case of Tokyo’s select-service hotel sector. Under such a liquidity trap, there were several ways for hotel managers to generate revenue by capturing nontraditional demands that emerged through the realignment of the management resources at hand.