Economics of tour packaging

Abstract

This dissertation analyzes the phenomenon of tour packaging from an economic viewpoint. There are many instances in the market-place of goods being sold as packages. Tourism products are just one example. The literature on packaging in general is reviewed with the conclusion that most economic explanations for this phenomenon (except for Barzel) conclude that monopoly power is a prerequisite. Tour packaging under competition and under monopoly conditions are analyzed. The types of tours and the price structures are different in each category. In monopoly conditions only one type of tour is offered (usually all-inclusive), whereas in competitive situations companies offer basic, intermediate and inclusive tours. Data on tours to the Hawaiian Islands were analyzed. Basic tours were found to offer an average of 14% discount over the equivalent retail costs. Intermediate tours and inclusive tours were found to charge a small premium. Progressively more tourists travel independently than on a basic tour; more travel on a basic tour than on an intermediate tour and more travel on an intermediate tour than on an inclusive tour. The addition of components to a tour requires an additional degree of taste similarity among participants. It was found that the more inclusive the tour, the less variance in socio-economic characteristics of the tourists. The consumer's vacation mode decision is modeled as a two-stage decision. The first stage is the consumer's decision of whether to travel independently or to purchase a tour. The second stage is, given that a tour is chosen, the type of package tour that will be purchased. Logit analysis is used to predict the consumer's choice. It is found that there are three factors affecting the first stage of the consumer's vacation mode decision. They are the information and transaction costs associated with each option, the price difference (or ratio), and the additional utility perceived by traveling with a group. The second stage of the decision model was found to be affected only by the number of destinations visited (a proxy for information and transaction costs). Price difference (or ratio) and socio-economic factors were not found to be significant factors in the vacation mode choice.