Hotel location when competitors may react: A game-theoretic gravitational model

Abstract

This paper presents a hotel location model that incorporates concepts from both game theory and gravitational site location models. We consider a hotel chain intending to build new hotels in a given region. Customers travel to the region to visit some specific points, termed “attractions”, and they choose a hotel according to room price, location and hotel attractiveness. Competitor hotels react to the new hotels by changing prices, in order to maximize their own profits, so the final set of prices will be a Nash equilibrium. We propose an iterative procedure for finding the equilibrium prices and a genetic algorithm-based procedure for finding the optimal strategy, in terms of new hotels to be built and respective typologies. Using a mini case, we illustrate and analyse the influence of several parameters. Then, we present computational experiments, concluding that the proposed procedures are effective in finding good solutions for the model.