Contracting and coordination in tourism service supply chain under service providers' competition

Abstract

Consider the issues of coordination and incentive in a tourism service supply chain of which consists a single travel agency and two competitive service providers. This paper develops a type of contract and achieves coordination of the system by means of game theory and contract theory, then analyzes the game players' equilibrium strategies and individual profits. When the service providers conduct a competition, we show that their effort level can be efficiently promoted and therefore the travel agency is better off. The service providers, however, just play the roles of quarrelers and there is no improvement of their expected payoff. Moreover, fierce competition always brings about greater fixed payment for the service providers, whereas this no longer holds for the bonus specified by the contract. Appropriate competition, which is less than the competitive threshold value, leads to bigger bonus, but inordinate competition will cut down the bonus. Our numerical examples further demonstrate that the fixed payment and the bonus have a complementary relation in motivating the service providers.