Market size, scale economies, and tourism market structure: A case of historic water town tourism in China

Authored by Mingcao Ma, Jin Weng, Larry Yu

Date Published: 2015

DOI: 10.1016/j.tourman.2015.02.014

Sponsors: Chinese National Natural Science Foundation

Platforms: NetLogo

Model Documentation: Other Narrative Flow charts Mathematical description

Model Code URLs: http://www.sciencedirect.com.ezproxy1.lib.asu.edu/science/article/pii/S0261517715000588

Abstract

The historic water towns in the Tai Lake Basin are representative of tourism products featuring a unique cultural heritage landscape and the local way of life in eastern China. Since the 19805, this market has experienced phenomenal growth in both the quantity of water towns and the scale of tourist arrivals. Drawing from industrial economics theory and an agent-based modeling approach, we examine the structural evolution of this market. Simulation results show that scale economies and market size are a pair of opposite forces driving the evolution of the historic water town tourism market structure, where scale economies play a role as a barrier to deter potential entrants and ensure superprofits for existing water towns, while an expanding market size creates opportunities for entry. Theoretical and practical implications are discussed, and management recommendations are made for tourism destinations competing with identical products and services. (C) 2015 Elsevier Ltd. All rights reserved.

Tags

Evolution Oligopoly Price Optimum product diversity Monopolistic competition Industrial-organization Creative destruction Hotel industry Luzhi