Model 3 exploits the full potential of the panel dataset and uses a random-effect regression analysis with clustered errors to explain both cross-section and time variability of real prices (Preal). These prices are observed for any hotel i and at any time t. Thus, in this case, also contextual variables come into play. The term ui represents the individual specific error of the random regression model. A SarganeHansen test of over identifying restrictions does not reject the appropriateness of the random effect versus the fixed effect model (p ¼ 0.16).