Price competition in a tourism supply chain

Abstract

In recent trend, advertising is seen to significantly impact channel members’ demand, pricing and profit in tourism supply chain (TSC). Most TSC studies, to date, assumed the market demand to be influenced only by tour price under price competitive environment, not considering the effect of advertising investment. In order to address this problem, two models are established considering decentralized channels: tour operator Stackelberg (TS) and local operator Stackelberg (LS). We analytically show TS model to provide better results than LS model and advertising to strongly influence the channel members’ pricing strategies and profit. Then we generalized the solution considering multiple operators under price competition. We studied two coordination mechanisms, cooperative advertising and two-part tariff, and found the two-part tariff provides better mechanism for improving the profit in LS model compared to cooperative advertisement.