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Competition between and within Tourist Destinations

Listed author(s):
  • Lorenzo Zirulia


    (Department of Economics, University of Bologna, Italy; KITeS, Bocconi University, Italy; The Rimini Centre for Economic Analysis (RCEA), Italy)

The aim of this paper is to analyze theoretically two levels of competition that are relevant in tourism markets, i.e. between and within tourist destinations. In particular, the focus of this paper lies in the relationship between the degree of (exogenous) differentiation between destinations and the (endogenous) degree of competition within the destination. Our main result is that an increase in the intensity of competition between destinations induces destination managers to increase competition within each destination. When the intensity of competition between destinations increases, the incentives to increase the intensity of competition within the destination are higher, since the subsequent increase in price leads to a larger gain in market shares. However, the strategy is followed by all destinations, with the consequence that firms' profits in both destinations are dispersed in a “prisoner's dilemma†scenario, reinforcing the negative effect of the increase in between destinations competition.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 39_09.

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Date of creation: Jan 2009
Handle: RePEc:rim:rimwps:39_09
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