Normative Approach of Upstream-Downstream Relationships in the Tourism Sector: Implication for the Tourism Policy of the South Mediterranean Countries

The paper proposes a model of a vertical relationship between Hotel owners (HOWs) and Tours operators (TOs). In a Benchmark situation, the HOWs and the TOs sell a generic good (“mass” good). The goal of the paper is to evaluate some policies that the government can use to implement the product diversification in the country. The diversification is realized towards a second market associated to a new product with more qualitative specifications. First, if the government imposes a (new) Minimum standard, we show that the fiscal measures play a complementary role, additionally of subsidies, to incite the producers to accept the additional investment in equipment. Moreover, there is an optimal combination that improves the total surplus of the country relatively to the Benchmark (revenues of the local producers minus the total level of subsidies and the cost of fiscal measures). Second, we assume that the government wants simply create an alternative market which may co-exist with the traditional one (the adhesion to the new or to the generic market is free for the HOWs and for the TOs). We show that there exist levels of public interventions (tax reduction, subsidy, and level of minimum requirement for the new product) such as the two markets co-exist. This policy may allow the government to save public fund improving meanwhile the global welfare of the country (leakage reduction relatively to the Benchmark situation).