A Tale of Two Motels: Just How Would You Know If They Were 'Price Gouging'?

Following an ice storm in southwest Missouri this past winter, an agency of the Missouri Attorney General's office collected more than eight million dollars from several area businesses, including two motels, as penalties and restitution for 'price gouging'.

Let me tell you about a pair of motels in another state: North Carolina. As a native of that state in a southeastern coastal location that hurricanes have a fondness for, with ten years hotel management experience, I've worked at several motels there.

First, a few notes about how motels work.

A motel room differs from a widget that appears on a store shelf in that it is a perishable commodity. You don't put a price tag on it and expect us all to agree that it has a tangible value. It's not a dollar coin. It's not a 20oz soda at the convenience store that we can agree is worth $1.39, more or less.

Even where the product is exactly the same, the price can vary. A room in a Hampton Inn in Bethlehem, Pennsylvania has an asking price of $159.00. The same room at a Hampton Inn in Santee, South Carolina, has an asking price of $98.00. Rooms at a Hampton Inn come pretty much one way, wherever you go. The difference lies in where they are, in how many people want to go to Bethlehem, and in how fewer people want to go to Santee.

Room rates float. They have to. If a night passes without a room rented, that room is worthless that night, despite the owner's investment in the hotel. But if demand is high, the law of supply and demand does its power and magic. I'm not going to charge people who are willing to pay eighty bucks only forty. Nor am I going to lose customers if I have a lot of empty rooms by trying to charge more than they're willing to pay, provided they can cover my cost. If you come to the 44-room motel I now run and need a room, and it's a busy weekend, and I only have one or two left; be prepared to spend upward of a hundred dollars, and it won't be one of our better rooms. If we're slow on a weeknight and I have lots of empty rooms, I might give you a better room for closer to fifty bucks.

So, if a motel is 'price gouging', how would you know?