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I know this is a topic that comes on and off. I just wanted to share my recent experiences in regards to rates. I usually visit Sri Lanka every year or so and from SL. After visiting several hotels I am quite amazed by the rates.
I was told many reasons as to why the rates are so high, none of which makes any sense to me. War is over so rates are higher! I think safe environment is something that everyone expect. It is a basic need. In other words this translates to that 3 years ago rates were cheaper because you could have gotten killed while on vacation, so here is a discount for ya. You cannot charge a higher rate because country is peaceful as it is a basic need.
The 2nd reason is there is an influx of tourists, it is a basic principal of supply and demand. Is this really true? How many of these " so called tourists" are ex-Sri Lankans with citizenship from other European countries who visited Sri Lanka on 30 day tourist visa?
When I visited the hotels I didn't see full hotels. Early check ins, no lines, and staff is just waiting around. Some were busy only due to weddings. People are converting their houses to hotels wanting a piece of the pie. Just because you add some new bathroom fittings and change the decor you cannot call your house a 5 star boutique hotel or provide least facilities and called it a eco Hotel? I mean I understand this whole concept of the country wanting to cater to high end tourists or someone who would really want to visit Sri Lanka for some unique feature it has to offer regardless of the cost.
I myself a hotelier and manage a hotel in California. Some will, but most tourists will look elsewhere. There is a general misconception in Sri Lanka that all the foreigners are rich and dumb and it is ok to rip them off in every chance you get.