The Federal Trade Commission’s Bureau of Economics released a report on Thursday stating hotels that do not include resort fees in their room rates increase the “search costs and cognitive costs of finding and choosing hotel accommodations.” The report did not make specific recommendation nor did it warn hoteliers to change their practices as it did in a 2012 report.
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 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.
The paper did suggest hotels could eliminate these costs to consumers by including the resort fee in the advertised price. They could still bundle the same resort services with the room and charge the same total price. They could also list the components of the total price separately, as long as the total price is the most prominently disclosed price. Hotels would also have the option, as they do now, of changing to unbundled, optional resort services, which would not be included in the advertised price.