Evolving patterns of hotel agglomeration: Economic cycles and technological influence

Abstract

For over a century, hospitality agglomeration research has accepted Marshall's premise that clustering reduces customers' search costs. This study questions that assumption as well as the implicit notion that agglomeration externalities remain unchanged over time, examining how economic cycles and technological advances influence the agglomeration-performance relationship in the lodging industry. Analyzing monthly data for 3690 Texas hotels (2000–2023), we confirm a positive baseline effect of agglomeration. However, recessions diminish clustering benefits for high-end hotels and slightly enhance them for low-end properties. Additionally, digital tools, such as local online searches and user-generated reviews, undermine the idea that spatial proximity inherently reduces search costs. These findings reveal agglomeration's dynamism, driven by shifting economic and technological factors, and dispel the century-old belief in its invulnerability to external changes. By incorporating time-sensitive performance drivers, this study advances agglomeration theory and provides practical guidance for hospitality managers assessing locations and asset values.