Conformity or differentiation? The effect of competitive strategy on hotel performance

Hotels often stay close to each other to exploit the agglomeration benefit. However, geographical proximity also parallels competition. This study used annual longitudinal hotel data from the 2016-2019 Indonesian Accommodation Survey to examine the relationship between competitive strategy and hotel performance. We constructed a capacity and quality distance index to capture hotel strategies and used the panel fixed effect method to address possible sorting behavior. Our estimates broadly suggest that conformity corresponds to a higher total revenue per available room. We attribute the result to labor pooling and lower consumer searching cost mechanisms. The results show that hotels that implement a conformity strategy in capacity or quality with neighboring hotels tend to have a higher total revenue per available room. It implies that a hotel's conformity strategy can be a reference for investors and hoteliers in planning a profitable hotel business and creating sustainable and quality tourism.