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Research Note: Coastal and Inland Reference Prices – a Differentiated Effect

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  • Juan L. Nicolau

Abstract

The idea that individuals make judgements and choices based on reference points could shed some light on tourist price response. In this regard, the goal of this paper is to examine the influence of the difference between reference price and observed price on the choice of tourism products with different degrees of awareness – well-known coastal destinations versus less well-known inland destinations. The author adopts the sticker shock formulation, in which tourists evaluate choice alternatives using differences between reference prices and actual prices; the article incorporates this formulation into the random parameter logit model, which allows the price response heterogeneity to be modelled explicitly. The results of the empirical application indicate distinct effects of the reference price–observed price difference according to destination type: tourists take their expectations on prices into account more when making decisions for inland destinations than they do for coastal destinations. That is, for inland destinations they do not remain as indifferent as they do for coastal destinations when contemplating prices that are higher or lower than expected.

Suggested Citation

  • Juan L. Nicolau, 2011. "Research Note: Coastal and Inland Reference Prices – a Differentiated Effect," Tourism Economics, , vol. 17(5), pages 1140-1151, October.
    • Handle: RePEc:sae:toueco:v:17:y:2011:i:5:p:1140-1151
    DOI: 10.5367/te.2011.0077
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    References listed on IDEAS

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