Evaluation and Illustration of Short-Run Profit Maximization Position
It seems reasonable to claim that taking a niche in such a beneficial location – near freshly opened ski fields – is quite a profitable option for a hotel. Keeping in mind that no rivals have occurred yet, there are a plethora of opportunities to develop a significant profit maximization strategy. Nevertheless, a number of these opportunities might be appropriate in the short run but not in the long one because there are weak barriers to entry.
Being a monopoly, I am able to act as a price maker, which is always a significant variant for a business. For instance, I could set relatively high prices for accommodation in my hotel. It is possible even to remove the advertisement for standard rooms and promote deluxe and apartments. Such propositions have notable added value that contributes to revenue maximization to the greatest extent. Then, it would be rational to provide clients with skiing equipment at prices significantly above the market ones.
Furthermore, I would make an extra charge on dishes and beverages in the hotel restaurant as there will be no competitors at the launching stages of the property, so clients will have to pay more. Such a policy of overpricing might contribute to noticeable profit margins and the reputation of a luxury hotel. However, the illustrated above strategy seems reasonable in the short run, but after a short period, this policy will become irrelevant. The reason for such an assumption is weak barriers to entry.
First, my property is the only actor in the location at this moment; thus, there is no fierce competition. Second, comfortable accommodation is a necessity for skiers, which means that the demand for hotel services will be high. Third, a location with such a notable condition – ski fields – might serve as a foundation for the decision to build a hotel in this area. The mentioned factors will affect my long-run profit maximization position, so I will have to adapt it. I will start promoting all of my available rooms and stop implementing my overpricing approach. Instead, I will concentrate more on added value and quality of my services so that customers will choose my hotel consciously.