This study investigates two main issues: the relationship between advertising expenditure and service quality, and the relationship between price and service quality in the hotel industry. The authors consider an asymmetric-information environment, in which consumers are uncertain about service quality, and address the above issues from a signalling perspective. Building on signalling and counter-signalling theory in economics, the authors propose a number of testable hypotheses and conduct an empirical study using data for Taiwanese international tourist hotels. The empirical results support the hypothesis that the advertising–quality relationship is inverted-U shaped, whereas the price–quality relationship is positive and monotonic. Hence, higher prices may signal higher service quality, whereas higher advertising expenditure does not necessarily signal higher service quality.

It has been known that the COVID-19 pandemic severely damaged the hotel industry. However, it is not clear whether hotels with different characteristics are affected equally. Using data collected from the hospitality industry in Taiwan and panel data estimation methods, we examine whether different hotel characteristics moderate the impact of the COVID-19 pandemic on hotel performance. We contribute to the literature by explicitly identifying different hotel characteristics as moderating factors for the effect of COVID-19 on hotel performance. Specifically, we find that international tourist hotels with high product varieties and five-star hotels suffered a greater loss in revenue than other types of hotels while hotels located in scenic areas and international chain hotels were less affected. An important managerial implication is that among various quarantine and hygiene measures adopted by hoteliers to fight or contain the pandemic, putting emphasis on social distancing and hygiene measures is particularly important for hoteliers to regain confidence from their customers.

The accepted norm of hotels generating the highest portion of revenue from their room sales does not apply in the case of Taiwan. International tourist hotels in Taiwan tend to diversify their business by expanding their food and beverage (F&B) services. According to international tourist hotels' financial statements for 1996–2008 (published by the Taiwan Tourism Bureau), almost 60% generate higher revenue from their F&B services. Drawing on the concept of comparative advantage, this study assumes that a hotel's comparative advantage depends on evaluating the profitability between the F&B departments and the lodging departments. The authors propose a simultaneous equation model with qualitative and limited dependent variables, drawing on the interactions between hotel profitability and revenue structure. The empirical results show that hotels in which F&B services contribute the majority of the revenue have a profitability advantage.

This paper investigates the influence of price instability on hotel profitability based on Taiwanese international tourist hotel operation data from 1996 to 2008. According to Tisdell (1963), price instability leads to a decrease in the profits of an entrepreneur if the output, once planned, is unalterable. The inflexible supply and volatile demand of the hotel industry offer an ideal case study to confirm Tisdell's theory. This paper provides an empirical test of Tisdell's model, and the authors find that price instability has a statistically significant and negative effect on hotel profitability. The study results lend support to the validity of the price instability hypothesis in Tisdell's model.