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Investment in Tourism Market: A Dynamic Model of Differentiated Oligopoly

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Author Info
Roberto Cellini (Dipartimento di Economia e Metodi Quantitativi, Università di Catania)
Guido Candela (Dipartimento di Scienze Economiche, Università di Bologna)

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Abstract

We present a theoretical model in tourism economics, assuming that the market for tourism is an oligopoly with differentiated products. Destinations (i.e., countries, regions, sites or even firms) can invest in order to improve their carrying capacity that can be interpreted as the stock of physical, natural or cultural resources. Tourism flows yield current revenues, but they are usually detrimental for the cultural or natural resource stock over time. We find the solution of the dynamic model, and in particular we find the open-loop Nash equilibrium of the game among the destinations, under alternative settings, depending on whether the arrivals are exogenous or endogenous, and depending on whether the degree of differentiation among destinations is exogenous or endogenous. The model is rather general, and it can provide answers to different specific questions, like the choice between mass- vs. elite-tourism development strategies; the effect of the number of competing products upon profits; the optimal degree of product differentiation.

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Publisher Info
Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.20.

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Date of creation: Feb 2004
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Handle: RePEc:fem:femwpa:2004.20

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Related research
Keywords: Tourism; Differentiated games; Reservation price;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Recreation; Tourism

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x.
  2. Forster, Bruce A., 1980. "Optimal energy use in a polluted environment," Journal of Environmental Economics and Management, Elsevier, vol. 7(4), pages 321-333, December. [Downloadable!] (restricted)
  3. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter. [Downloadable!] (restricted)
  4. Reynolds, Stanley S., 1991. "Dynamic oligopoly with capacity adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 491-514, July. [Downloadable!] (restricted)
  5. Claudio Piga, 2003. "Pigouvian Taxation in Tourism," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(3), pages 343-359, November. [Downloadable!] (restricted)
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  6. Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
  7. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring. [Downloadable!] (restricted)
    Other versions:
  8. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May. [Downloadable!] (restricted)
    Other versions:
  9. R. Cellini & L. Lambertini, 2002. "Private and Social Incentives Towards Investment in Product Differentiation," Working Papers 431, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  10. Cellini, Roberto & Lambertini, Luca, 2002. "A differential game approach to investment in product differentiation," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 51-62, November. [Downloadable!] (restricted)
  11. Reinganum, Jennifer F., . "A Class of Differential Games Where the Closed-Loop and Open-Loop Nash Equilibria Coincide," Working Papers 333, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  12. Reynolds, Stanley S, 1987. "Capacity Investment, Preemption and Commitment in an Infinite Horizon Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 69-88, February. [Downloadable!] (restricted)
  13. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May. [Downloadable!] (restricted)
  14. Fershtman, Chaim & Nitzan, Shmuel, 1991. "Dynamic voluntary provision of public goods," European Economic Review, Elsevier, vol. 35(5), pages 1057-1067, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fabio Cerina, 2006. "Tourism Specialization and Sustainability: A Long-Run Policy Analysis," Working Papers 2006.11, Fondazione Eni Enrico Mattei. [Downloadable!]
  2. Schubert, Stefan Franz, 2009. "Coping with Externalities in Tourism - A Dynamic Optimal Taxation Approach," MPRA Paper 16736, University Library of Munich, Germany. [Downloadable!]
  3. Cellini, Roberto & Torrisi, Gianpiero, 2009. "The regional public spending for tourism in Italy: an empirical analysis," MPRA Paper 16917, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Correani, Luca & Garofalo, Giuseppe, 2008. "Chaos in the tourism industry," MPRA Paper 9677, University Library of Munich, Germany. [Downloadable!]
  5. Fabio Cerina & S. Giannoni, 2008. "Pollution Adverse Tourists and Growth," Working Paper CRENoS 200822, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
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