Economic methods are widely used to analyze the behavioral issues such as consumption and production of goods and services. However, most of economic analyses are addressed on the demand and supply of goods, but not services. Since the hospitality industry mainly contains service issues, numerical analysis with service indexes can provide important information to management of the industrial organizations. Chen and Lin have used the number of housekeeping staff per room and the number of food and beverage (F and B) staff per floor area as the proxy of room service quality and F&B service quality respectively to investigate the relationship between the service quality and profitability in hotel business. Their results show that there is a non-linear relationship between F&B service quality and hotel profitability, while the room service quality effect is not significant. Lin and Chen (forthcoming) also investigate the relationship between service quality and market structure to reveal the dominated strategy of service quality depended on the market concentration of hotel scales. As can be seen, adopting service science into the industrial economics can provide a practical vision on analyzing hotel industry.
Chen and chang also apply the methods of labor economics on the hotel industry. The traditional view of labor demand addresses on the derived demand. However, in hotel industry, increasing the number of staffs can increase the service quality, generating the increasing customers and revenues. On the other hand, the increased revenue can also derive the labor demand so that the problem of endogeneity arises as investigating the relationship between room revenue and labor demand. Their study show that with the endogeneity treatment on the labor demand model, the number of staffs distributed to room services to increase revenues can be 6.6 times of difference from the traditional.
From the industrial economic point of views, the tourism industry is highly affected by the market fluctuations. The problem of uncertain guest arrivals has been discussed in the yield management. Different from traditional hotel research, Chen and chang take account of the uncertain demand as the factor of market fluctuation and find that hotels tend to expand their product variety as the uncertain demand is high. Also, Chen and Yeh find that the demand uncertainty can increase the likelihood of hotel failures. On the other hand, assuming that uncertain demand takes the form of output price uncertainty, Chen and Lin find that demand uncertainty lead to an increase in hotel capacity. Chen and Lin conclude that price instability decreases hotel capacity when volatile demand makes the hotel industry vulnerable to price instability.