Investment in Tourism Market: A Dynamic Model of Differentiated Oligopoly

31 Pages Posted: 22 Mar 2004

See all articles by Roberto Cellini

Roberto Cellini

University of Catania - Department of Economics and Business

Guido Candela

University of Bologna - Department of Economics

Date Written: February 2004

Abstract

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.

Keywords: Tourism, Differentiated games, Reservation price

JEL Classification: D43, D92, L83

Suggested Citation

Cellini, Roberto and Candela, Guido, Investment in Tourism Market: A Dynamic Model of Differentiated Oligopoly (February 2004). FEEM Working Paper No. 20.2004. Available at SSRN: https://ssrn.com/abstract=504342 or http://dx.doi.org/10.2139/ssrn.504342

Roberto Cellini (Contact Author)

University of Catania - Department of Economics and Business ( email )

Corso Italia 55
95129 Catania, 95129
Italy
+390957537728 (Phone)
+390957537710 (Fax)

Guido Candela

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 0541 434118-9 (Phone)
+39 0541 434120 (Fax)

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