Game theoretic investigation into dynamics of tourism supply chains for package holidays: a comparison between Cournot and Bertrand competition

Abstract

The Hong Kong tourism industry has enjoyed rapid growth in recent years and is becoming one of the pillars in its economy. This paper will consider a Hong Kong tourism supply chain that provides package holidays. Tour Operators are responsible for configuring and pricing their package holiday products. A common and key activity of all these tourist products is a visit to a theme park destination. This tourism supply chain includes three sectors. Theme park and hotel and accommodation providers respectively coordinate with tour operators where a horizontal competition exists to optimize their own objectives. We are interested in investigating into (1) what optimal equilibrium states tour operators could achieve through competing with each other; (2) the coordinated relationships between tour operators and theme park or hotel and accommodation providers; and (3) the differentiations between the effect of quantity competition and the effect of price competition on the three sectors (e.g. tour operators, hotel and accommodation providers, and theme park). These three questions are studied through a tourism supply chain oligopoly game framework: (a) under Cournot model of a coordinated sequential game where tour operators achieve a Nash equilibrium through quantity competition; (b) under Bertrand model of a coordinated sequential game where tour operators achieve a Nash equilibrium through price competition; and (c) comparing the tourist quantity and the profits of the three sectors between quantity competition and price competition. The most important finding is that tour operators are more interested in quantity competition, while the theme park prefers price competition among tour operators.