Ethnic Links, Locations Choice and Performance: A Test of the Rural Motel Industry

This paper explores whether membership in ethnically based groups influences conduct and performance in a spatially dispersed industry. We test two propositions. First, when group members own several units in a given market, prices and revenues might be similar to when just one person owned these units. Second, if group membership provides such performance benefits, members may locate their units to obtain these benefits. Using over a thousand hotels located in rural Texas, we test the role of ethnic group membership by examining hotels owned by individuals with the surname “Patel”. This surname is common in the hotel industry, with some estimates of Patels owning one in four US motels. Though most are not directly related, much anecdotal evidence suggests that Patels try to lessen the competition among their units. Interestingly, we find that for Patel owned hotels, proximity of other Patels confers no performance gains. While collocating at a regional level, Patels do not collocate at the finer zip code level, which prevents them from coordinating to enhance performance.