A comparative analysis of quantity and price competitions in tourism supply chain networks for package holidays

Abstract

Package holidays are the main modes of outbound travel in many Asian countries and regions, especially in mainland China. This paper considers competition strategies in a tourism supply chain (TSC) network consisting of three sectors – theme parks, accommodation providers, and tour operators (TOs). They are involved in producing and providing package holidays which are substitutable to each other. TOs are responsible for assembling and retailing package holidays. Two competition strategies commonly used in the tourism market are compared. They are quantity competition and price competition. From the perspective of game theory, these two types of competition strategies are modelled as the Cournot game and the Bertrand game, respectively. In this paper, enterprises within the same sector of the TSC play simultaneous games while sequential games are played between sectors. A series of sensitivity analyses are conducted to explore: (1) the differences between the impacts of quantity and price competitions on the individual sectors and the TSC network as a whole, and (2) the rational reactions of a sector to the changes made by other sectors under different competition strategies. Results from this theoretical study could help TSC decision and policy makers in identifying appropriate pricing and capacity strategies.