Insiders vs. outsiders in the hotel sector

ABSTRACTWe investigate whether entering an official hotel classification system is as lucrative as suggested in the tourism management literature. Indeed, in countries in which the official hotel classification system is voluntary, a substantial fraction of hotels choose not to enter the system, and are outsiders. Considering that being classified (being insider) as a predictor of the rate structure may raise an endogeneity issue, we apply the recursive semi-ordered probit model to control for endogeneity and appropriately assess the effect of being classified on price rates. Using a sample of 357 hotels of Corsica, we show that, in contrast to previous research, classification does not provide any rate premium. We also fully derive conditional probabilities and partial effects on differences in conditional probabilities within the recursive semi-ordered probit model.