Price and Service Competition in a Tourism Supply Chain

The tourism supply chain literature has predominantly focused on price-sensitive demand and ignored the service-sensitive demand issue. In competitive practice, both price- and service-sensitive demand play a significant role for tourists in selecting a tour package. In this paper, the authors discuss a case in which two tour operators compete on price and service to offer tour packages and serve the customers through a common local operator. The authors develop a mathematical model for a tourism supply chain under three scenarios: (i) a decentralized scenario, (ii) an integrated-channel scenario, and (iii) a global scenario. The results show that the tourism supply chain generates more profit when there is competition compared with when there is no competition. Furthermore, the results show that coordination among supply chain members with surplus sharing contracts improves the overall tourism supply chain profit compared with the decentralized scenario.