Impact of quality on estimations of hotel efficiency |
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Institution: | 1. Faculty of Economics and Center for Advanced Studies in Management and Economics (CEFAGE), Universidade do Algarve, Campus de Gambelas, 8005-139 Faro, Portugal;2. Interdisciplinary Centre for History, Culture and Societies (CIDEHUS), Universidade de Évora, Palácio do Vimioso, Largo Marquês de Marialva, 8 7000-809 Évora, Portugal |
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Abstract: | This paper provides empirical evidence on the impact of output quality on hotel efficiency. It demonstrates how ignoring quality can lead to erroneous efficiency estimates. The study uses stochastic frontier methodology and the model proposed by Battese and Coelli (1995) to estimate the efficiency of 838 hotels in Spain in the period 2009–2013. The key advantage of this methodology is its ability to estimate efficiency and identify factors that explain differences in efficiency in a single-stage sampling procedure. Estimates of cost efficiency, which only include the costs of higher quality, are compared to those of profit efficiency, which not only consider costs but also the revenues generated by higher quality. Results show that quality has a negative impact on cost efficiency and a positive one on profit efficiency. Thus, hotel management should implement strategies that increase the value of their services as a way to achieve sustainable competitive advantages. |
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Keywords: | Output quality Cost efficiency Profit efficiency Stochastic frontier Hotel industry |
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