Oligopolistic Pricing Strategies in the Hospitality Industry of Macao During COVID-19

This paper examines oligopolistic pricing strategies of six representative integrated resorts run by the casino operators of Macao, namely Altira, Broadway, Conrad, Grand Lisboa, MGM and Wynn. The empirical analysis is based on daily per-square-foot hotel room rates from November, 2019 to mid-August, 2020, covering the periods before and after the outbreak of COVID-19. The price differentials show evidence that there are price clusters. Pre-COVID-19, MGM and Wynn appear in the high-price cluster, Conrad is in medium-price cluster, and Altira, Broadway and Grand Lisboa are in the low-price cluster. Post-COVID-19, MGM and Wynn remain in the high-price cluster, but the relative price positions of others switch, such that Conrad and Altira move down to the low-price cluster. The regression analyses confirm that all price differentials, except for the one between Broadway and Grand Lisboa and the one between MGM and Wynn, experience significant structural changes due to COVID-19. In models of differentiated oligopoly (e.g. Singh and Vives (1984) and Häckner (2000)), price differentials across firms are due to product differentiation and the resulting cost differences. Hence, the theory is in line with how the change in pricing strategies could be due to the adjustments of hotel features to be more appealing to local consumers rather than tourists during the pandemic (Matias & Moura, 2020). Such strategies can lead to a “re-program” in the hospitality industry and result in long-term impacts extended beyond the pandemic (Matias & Moura, 2020).