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Tuesday, November 29, 2005

Colorado College buys J's Motel

This past spring Colorado College purchased J’s Motel. This is what Thomas Nycum, vice president for business and finance claimed, “We house 1,500 students and running a residence hall is not unsimilar to running a hotel.”

When Nycum stated this I think he was considering residential housing and motel renting to be in the same market when in fact they are two different markets entirely. CC requires students to live on campus for three out of four years. This makes housing at Colorado College a monopoly. The demand for housing on campus is primarily inelastic and so students will pay for housing, whatever the costs, or else they can choose not to go to CC at all.

The market for motels is very different than that of campus housing though. If a customer is unsatisfied with pricing they will go somewhere else. The market for motel rooms is primarily in perfect competition. There are multiple sellers and buyers with little barriers to entry. CC is hoping for 50 percent occupancy of the motel throughout the year to at least break even:

Most of the motel rooms are for student housing. Fifteen rooms and two suites are available for CC guests such as parents, visiting lecturers and other campus visitors. They come complete with daily housekeeping. The rooms — from $65 to $100 a night plus tax — are not available to the public. CC is not interested in competing with neighboring lodges, school officials said.

The former J’s Motel is a good example of how different the markets of CC housing and “room renting” can be. The motel is located just minutes from CC and is in “prime location” for CC visitors. J’s Motel saw struggle due to the competitive nature of the market. I am questioning whether or not it is possible for CC to claim it will not be competing with the other lodges since the new motel will still be in the same location and after the same customers as J’s motel. I see Colorado College’s new motel competing for business either way. They are hoping to just break even and essentially to do that effectively they will have to price the rooms in respect to the demand of the motel market.

Renting motel rooms and housing CC students may seem to need basically the same kind of management, but when it comes down to the financial and market aspects of it they are two completely different things. Colorado College may very well be able to manage and maintain a successful motel, but they will have to take into account the competitive aspect of the market before they plan too far in advance.

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