We study the effects of vertical and horizontal differentiation on pricing policy in a large sample of hotels
in Spain. We show that hotels with more stars (i.e., vertically differentiated) offer smaller discounts over
listed prices, in addition to charging higher prices. Similarly, hotels that belong to a branded chain (i.e.,
horizontal differentiation) also charge higher prices and provide smaller discounts. We show how the
degree of local competition moderates the effect of differentiation on pricing policy, but only for vertical
differentiation. Differentiation indeed protects hotels from the pressure to reduce prices as competition
increases, but being better seems to be more effective than just being different