26 Pages Posted: 6 Feb 2004
Informational asymmetry and fragmentation of capacity suppliers in the tourist industry provide travel intermediaries with market power. Market structure is characterized by over-capacity in off-peak seasons, high fixed costs and low variable costs, leading to product under-pricing. Forward sales of capacity at low contract prices surrender profits from consumer surplus to intermediaries enjoying oligopsony benefits. The creation of formal futures contracts in rooms and seats would permit operators to hedge demand uncertainty and retain more of the profits. Online intermediaries can serve the interests of domestic hotel operators through exploitation of databases to provide analytical solutions to capacity utilization and to develop demand balancing.
Keywords: Tourism Industry, Online Travel Intermediary
Suggested Citation: Suggested Citation
Hoontrakul, Pongsak and Ryan, Peter, An Economic Analysis of the Tourism Industry - Implications of the Online Travel Intermediary. Available at SSRN: https://ssrn.com/abstract=494622 or http://dx.doi.org/10.2139/ssrn.494622