Modeling uncertainty in tourism markets

Article - Tuesday, 10 September 2024

Duro, J.A., Osório, A. and Pérez-Laborda, A. (2024): "Modeling uncertainty in tourism markets", Annals of Tourism Research

In the recent years the tourism sector has been hit by a number of uncertainty events. In this paper, Juan Antonio Duro, António Osório and Alejandro Perez-Laborda, researchers from the department of economics at URV and ECO-SOS, study how uncertainty impacts on the tourism markets and on the destinations price and promotion decisions. They consider a two-stage model with two reference destinations and product differentiation. Specifically, they distinguish between traveling and production costs/inputs uncertainty, and between informative and persuasive advertising. They found that uncertainty tends to increase prices as destinations pass uncertainty to consumers. However, in order to minimize the negative effect of higher prices in their bookings, destinations tend to intensify their promotion efforts. Altogether, uncertainty typically affects more consumers than destinations, which in most cases see their profits increase because of the increase in prices.