Markets Wired

A new issue paper authored by an FTC staff economist concludes that consumers are likely being harmed by the hotel industry practice of disclosing mandatory resort fees separate from posted room rates, without first disclosing the total price.

The paper, issued by the FTC’s Bureau of Economics,  examined the costs and benefits of disclosing mandatory resort fees separately from room rates by reviewing research on drip pricing and partitioned pricing. It found that the practice likely increases consumers’ search costs and cognitive costs in trying to find and choose hotel accommodations unless the total price is presented first.

“Separating resort fees from the room rate without first disclosing the total price is unlikely to result in benefits that offset the likely harm to consumers,” the study states.

 Resort fees are per-room, per-night, mandatory fees charged by some hotels for services such as Internet access, parking and health club access. In 2015, the paper notes, consumers paid resort fees estimated at about $2 billion, 35 percent higher than the previous year.

For consumers who are trying to comparison shop, either through hotel websites or through online travel agent sites, mandatory resort fees force them to click through additional web pages or calculate and remember total hotel prices, the paper notes. This leaves them with a choice “either to incur higher total search and cognitive costs or to make an incomplete, less informed decision that may result in a more costly room, or both.”

The paper found that hotels could eliminate these costs to consumers by including the resort fee in the advertised price, or by listing the components of the total price separately and prominently disclosing the total price first.

The Federal Trade Commission conducts research on issues that affect competition, consumers, and the U.S. economy. Like the FTC on Facebook, follow us on Twitter, read our blogs and subscribe to press releases for the latest FTC news and resources.