Price Competition under Different Power Structures of Hotels and Travel Agency in Tourism Supply Chain

Abstract

This paper studies impacts of different power structures on the room rates in a tourism supply chain with two hotels (one luxury and the other economical), and one travel agency. Three power structures are considered: the hotels or the travel agency play channel leadership or there is no leadership in the supply chain. The first two power structures are formulated as Stackelberg game model and the third structure as a Nash game model. Comparative studies are conducted between the three structures and the effects of different parameters on equilibrium prices, demands and profits are explored. The results show that with the hotels or travel agency taking a supply chain leadership, the tourists will receive higher room rates, compared with the case without channel leadership. Moreover, when the basic utility of the hotels is lower than a certain level and there is no channel leadership, the profit of the economical hotel will be the lowest and the profit of the luxury hotel will be higher than the case with the travel agency taking the leadership. If the hotels take the leadership, we find that the travel agency will be the least profitable and its profit is also the least sensitive to the basic utility; the hotels’ profits are the largest and the most sensitive to the basic utility.