It is impossible to capitalize on the presented opportunities without the analysis of the competitive landscape. Without the knowledge of the market price, there is no chance for a firm to establish an optimal price for its product, especially if there are multiple competitors that provide a similar or nearly similar product (Tabarrok & Cowen, 2015). The hotel market in Jacksonville, Alabama, requires additional comparison of the available options due to the specifics of the location and the industry itself. This essay analyzes the hotel industry in Jacksonville, Alabama to determine critical factors for a new company originating from this town.
There is a solid foundation for new hotels in Jacksonville, Alabama, due to the presence of the Jacksonville State University, which serves as the main attraction for visitors. Due to this fact, the most popular hotels in the area, such as the University Inn, specialize in housing students (“Hotels in Jacksonville,” n.d.). As of May 19, 2021, there are 80 hotels nearby this location listed on the booking website Hotels.com, most of which are within a similar price range of $100-115 (“Hotels in Jacksonville,” n.d.). In the town itself, there are only three options available for tourists currently, with their prices differing significantly due to the quality of services (“Hotels in Jacksonville,” n.d.). There are no major companies that comprise the top of the hotel industry competitors on this market, making it more accessible for entry.
The number of firms in this local market is high in relation to the size of the town, which brings it closer to a monopolistic competition market structure. It is vital to consider that there is no single firm that takes a significant market share among these hotels. Moreover, due to the specifics of the customer base, most hotels appear to aim for the lowest price to make their services more available. As the multitude of companies presents their services that differ in quality for the same customer base, it is possible to assume that the hotel market in Jacksonville, Alabama, is an example of monopolistic competition.
The chosen market presents an opportunity for a new company due to the rising demand. Over the last decade, the hotel industry in the United States has experienced steady growth up until 2020 (Ristoff, 2021). However, the virus outbreak significantly weakened the industry performance, leading to a 21.4% decrease in the number of establishments and a 59.1% decrease in revenues (Ristoff, 2021). Nowadays, many competitors did not recover yet, while the demand grows rapidly, especially among domestic travelers (Ristoff, 2021). While the recovery process has already shown a promising result, the hotel industry remains weakened by the impact of the lockdown.
Some of the most valuable information for a new company is the analysis of competition on the market it plans to operate in. According to IBISWorld, the market share concentration in the hotel industry is low, and the market is highly fragmented, with about half of all companies having nine or fewer employees (Ristoff, 2021). The competition is high and continues to increase, and the barriers to entry are medium (Ristoff, 2021). Moreover, there are many opportunities for new companies to establish their presence on the market by providing a unique experience to their customers (Ristoff, 2021). The top four companies in the hotel market in the United States take slightly below 5% of the total market share (Ristoff, 2021). The nationwide statistics imply that it is not impossible to start a new hotel.
The situation in Jacksonville is not specific for this town, as the hotel industry is comprised of smaller firms. Beveridge (2018) describes this market structure when “each firm faces a highly elastic demand because each firm is selling a product for which there are a number of close, but not perfect substitutes” as monopolistic competition (p. 237). The market covers an extensive potential customer base, as the service by a single hotel can be customized for a large variety of visitors. While monopolistic competition is linked with relatively low barriers to entry, its actual difficulty for this market depends on the chosen location (Beveridge, 2018). The trends imply that barriers to entry will get lower due to the government support of the industry, and the prices will become less concentrated (Ristoff, 2021). Therefore, the closest type of market structure for the hotel industry in the United States is monopolistic competition, although there are some considerations.
In conclusion, the hotel industry in Jacksonville, Alabama, and in the United States overall has a monopolistic competition market structure. Companies have enough opportunities to provide a unique experience for their customers. Moreover, the demand for their services continues to grow across the country, despite a major setback by the events of the past year. However, a new hotel firm will need to find its niche by taking into account both existing firms and customers’ preferences. The industry that was chosen for this assignment requires careful consideration for any company that intends to join it due to potential difficulties with high competition and instabilities introduced to the market during the lockdown.
References
Beveridge, T. (2018). A primer on microeconomics (2nd ed.). Business Expert Press.
Hotels in Jacksonville. (n.d.). Hotels.com. Web.
Ristoff, J. (2021). Hotels & motels in the US. IBISWorld. Web.
Tabarrok, A., & Cowen, T. (2015). Introduction to the Competitive Firm. Web.