The Costs of Urban Agglomeration: Evidence from the Inbound Tourism Boom in Japan

This study provides novel insights on the hypothesis of tougher demand competition in larger cities, focusing on the accommodation sector. In recent years, Japan has experienced a sudden increase in foreign tourists, which has increased the room occupancy rates of hotels, especially in large cities, such as Tokyo and Osaka. Large cities also attract domestic visitors from across the country, meaning that the inbound tourism boom results in a situation where hotel demand of Japanese visitors is in direct competition with that of foreign visitors. This study finds that the increase in hotel demand of foreign visitors has increased the difficultly for Japanese visitors to find vacant rooms (vice versa) since the beginning of inbound tourism boom around 2013, especially in both business and city hotels in large cities, suggesting that visitors to larger cities face higher costs of searching for vacant rooms.