Increasing cognitive proximity investments in spatial tourism duopoly

Abstract

As distance is often one of the main factors in a tourist’s decision to visit a given location, tourism companies often attempt to lower the impact of geographic distance through promotion and related efforts. The focus of this paper is on the business strategy of tourism companies in a competitive market. We examine methods to shorten geographic distance and cognitive distance within a homogenous market consisting of two competing tourism companies. Specifically, we first deal with the question of how to shorten the cognitive distance between a tourism company and its potential tourists’ psychological status. We then address the impact of geographic distance on the tourist’s choice of travel destination. Through an endogenous business strategy, we discuss the differentiation strategies under the three-stage game process, acquiring a better understanding of the relationship between proximity investment sizes and pricing. The results show that spill-over effect is the decisive factor in a tourism company’s investment decision. We also find that non-cooperation is a better strategy for a tourism company in a competitive market. Key words: Friction of distance, cognitive proximity, three-stage game, spill-over effect.