Influence of uncertain demand on product variety: Evidence from the international tourist hotel industry in Taiwan

Hotels provide many different types of rooms in terms of capacity as well as quality to diversify their products. This paper examines the relationship of uncertain demand and product variety by using monthly operation data from international tourist hotels in Taiwan during 2007-2009. First, the authors apply the two-stage least squares (2SLS) and random-coefficients models to estimate the demand function in Taiwan's international tourist hotel industry. They then examine the relationship between uncertain demand and product variety. The empirical results indicate that the market's uncertain demand significantly induces the hotels to expand their product variety.