Does uncertain demand affect service quality?

Abstract

The purpose of this article is to investigate the impact of demand uncertainty on labor intensity as well as service quality. Theoretical predictions are mixed: on the one hand, risk aversion leads hotels to choose a lower level of capital in response to demand uncertainty, thereby leading to higher labor intensity; on the other hand, the demand-enhancing benefit of service quality may be weakened due to demand uncertainty, thereby leading to a lower service quality decision. Using the data of international tourist hotels in Taiwan, this article shows that demand uncertainty leads to a positive impact on hotels` labor intensity. In addition, hotels located in markets with a higher degree of concentration, having more diversified revenue sources, or belonging to hotel chains also tend to exhibit higher labor intensity.