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Investment in Tourism Market: A Dynamic Model of Differentiated Oligopoly

  • Roberto Cellini

    (Dipartimento di Economia e Metodi Quantitativi, Università di Catania)

  • Guido Candela

    (Dipartimento di Scienze Economiche, Università di Bologna)

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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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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  1. repec:cup:cbooks:9780521637329 is not listed on IDEAS
  2. Claudio A. Piga, 2006. "Pigouvian Taxation in Tourism," Discussion Paper Series 2006_2, Department of Economics, Loughborough University, revised Jan 2006.
  3. Ottaviano, Gianmarco & Thisse, Jacques-François, 1998. "Agglomeration and Trade Revisited," CEPR Discussion Papers 1903, C.E.P.R. Discussion Papers.
  4. R. Cellini & L. Lambertini, 2002. "Private and Social Incentives Towards Investment in Product Differentiation," Working Papers 431, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. R. Cellini & L. Lambertini, 2001. "Differential Oligopoly Games where the Closed-Loop Memoryless and Open-Loop Equilibria Coincide," Working Papers 402, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Reynolds, Stanley S., 1991. "Dynamic oligopoly with capacity adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 491-514, July.
  7. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May.
  8. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  9. 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.
  10. M. Thea Sinclair, 1998. "Tourism and economic development: A survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(5), pages 1-51.
  11. repec:cup:cbooks:9780521586399 is not listed on IDEAS
  12. Fershtman, Chaim & Nitzan, Shmuel, 1991. "Dynamic voluntary provision of public goods," European Economic Review, Elsevier, vol. 35(5), pages 1057-1067, July.
  13. 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.
  14. 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.
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