Asymmetric own- and cross-price effects: the case of US outbound tourism demand

Abstract

ABSTRACT Past studies have generally assumed that tourism demand is perfectly price-reversible, and tourists respond to price increases and decreases symmetrically. This paper aims to investigate the potential asymmetric effects of tourism prices on outbound US tourism demand for Canada, Mexico, the UK, France, and Italy. Using the linear and nonlinear autoregressive distributed lag (ARDL) approach, the results show that in the long run, asymmetric responses to own-price changes are found for Canada, the UK, France, and Italy. Regarding own-price elasticities, US tourists tend to respond strongly to price increases, while they are insensitive to price decreases in the long run. These findings differ from the results from the linear model in which the own-price elasticities tend to be insignificant. In the short run, tourism demand appears to be more responsive to price decreases than to price increases, suggesting that tourists’ behaviour differs between the short and long run. Examination of the cross-price elasticities indicates that the degrees of substitutability and complementarity between destinations vary, depending on the direction of price changes.