"If You Are Not Pleased with Our Service, You Do Not Have to Pay"
A few weeks ago, I traveled with my family to Indiana. We stopped for one night at Hampton Inn. At the reception desk, we noticed a sign saying something like "If you are not pleased with our service, you do not have to pay." Legally speaking, that means that a guest can walk away without paying. Such behavior could be quite rewarding: the rate for a suite is about $200 a night, so a three-day-stay without paying could be a real temptation. How can the hotel afford such a policy? Before responding, let me say first that neither I nor my colleagues at the Law School with whom I talked have witnessed such a policy actually carried out by a hotel. Most of us have seen something similar in restaurants, where a sign says something like "Don't pay if you did not like our food." But the risk of not being paid for a pizza is not comparable to the risk of losing a few hundred dollars!
What, then, makes the hotel adopt such a policy, and more interestingly, how does such a policy survive? The answer to the first question is easy. The hotel sends a credible signal to its potential guests that the hotel is confident of the high quality of its services and is certain that the guests will know to appreciate it. Instead of "cheap talk," the hotel takes a real risk! The second question is much harder. How does such a policy survive? This is not a trivial question, and what makes it even trickier is the fact that such a policy is probably quite rare when more than a few dollars are at stake.
One can just speculate. First, most people are decent and behave fairly. If the service is good, they will pay. This is a factual statement that should be verified empirically, and I'm not sure it can explain the phenomenon. Second, even those who are not decent will tend to pay, concerned with the reaction of the hotel's staff and other guests towards them if they don't. But this can hardly be a reason to pay, since it seems one could just leave a note for the hotel or find the right time to approach the reception desk when no one but the person who sits at the reception desk is around. Third, probably many of the guests are repeat customers, that is, people who would like to stay either at the same hotel or in the same chain of hotels in the future. Assuming a non-paying guest is marked by the chain as a problematic customer and assuming also that the hotel can legally (and practically) refuse to host him or her in the future, not paying appears to be a meaningful (and costly) risk that many guests would not dare to take. This explanation, however, leaves one important group of guests undeterred: those tourists who consider themselves one-time guests. Moreover, it is doubtful—at least in some jurisdictions—whether a hotel could refuse to host a guest because he or she lawfully did not pay for his or her stay in the past.
Fourth, the hotel may simply ignore the guest's announcement that he is not willing to pay and charge his credit card. The guest may try to cancel the transaction later by proper notice to the credit card company. That process, however, could be burdensome, costly, and time-consuming. It could also add to the guest’s general embarrassment over the matter. Some guests will prefer to avoid this process by paying to the hotel in the first place. I have no reason to suspect that Hampton Inn has such a practice, but theoretically, it could. Fifth and finally, the hotel’s risk of non-payment is not too great because it is doubtful (legally speaking) that a guest who stays for more than one night is entitled to refuse to pay for his entire stay (as opposed to one, final night only).
In the end, it is hard to know how the hotel's policy holds up. It could be interesting to check how many guests do not pay and what characterizes them. One could also wonder whether, if all guests pay—and not necessarily because of the high quality of the service but for one or more of the other reasons I mentioned—the hotel's signal is credible. And if the signal is not credible, why bother to hang the sign at the reception desk in the first place? A possible answer could be that since very few guests consider the issue for more than a few seconds, they mistakenly take the signal as credible. That gives the hotel a good reason to send the (false?) signal after all. We, by the way, paid!