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2007 Annual International CHRIE Conference & Exposition
505
because each of these TSC enterprises has influences on tourists’ experiences as well as payoff behavior, the
performance of any entity depends on the performance of others (Swaminathan, Smith, and Sadeh 1998). These
collaborations and interactions shift tourism enterprises competing no longer as solely autonomous entities, but
rather as supply chains (Lambert and Cooper 2000).
TSC collaboration and competition are challenging not only to practitioners but also academic researchers.
Little analytic work has been reported in the literature in this area (Zhang 2005). It is complex to formulate a
theoretical model for TSC collaboration and competition for a particular tourism industry in a specific region like
Hong Kong. It becomes increasingly important to identify the distinctive features for efficient and effective tourism
supply chain management (TSCM).
In this paper, we investigate competition dynamics of two TSCs for a package holiday. Each TSC involves
three sectors. They are tour operators, hotel & accommodation providers, and a theme park operator. Others such as
transport, bars and restaurants, etc. are not considered in order to simplify the theoretical model. The tourism supply
chain is represented as a network where each sector is represented as a node. The three sectors are arranged into two
layers or echelons. The upstream layer contains hotel & accommodation providers and theme park operator, They
are suppliers of tourist components or options of package holiday products. The downstream layer has only one
sector including tour operators. Tour operators are responsible for configuring and marketing package holidays
according to tourist (customer) requirements from component options provided by the upstream sectors. These two
TSCs provide package holidays with different theme parks. One TSC focuses on package holiday products
exclusively with a “fantasy” theme park and the other TSC with a “variety” theme park. Tourists only choose one of
the two types of package holiday. The two types of package holidays provided by the two TSCs are substitutes.
The purpose of this research is to provide comprehensive understanding about competition dynamics of
tourism supply chain for package holiday. Competition dynamics here is considered as the influence and reaction of
interdependent and self-interested tourism businesses (e.g. tour operators, theme park operators, and hotel &
accommodation providers) in TSCs when competition environment changing, such as market scale enlarging,
operational cost increasing, new competitors entering and supply chain loyalty decreasing.
Three types of competition are discussed. One is the intra-sector competition between suppliers within a
sector as hotel & accommodation providers sector or tour operators sector. The second is the sector competition
between sectors in certain supply chain. Specially, vertical sector competition is between theme park operator sector
and tour operators sector, as well as between hotel & accommodation providers sector and tour operators sector.
Horizontal sector competition is between theme park operator sector and hotel & accommodation providers sector.
The third is the chain competition between two TSCs. It is presented by substitute package tours sold by tour
operators directly competing in the terminal market.
In this theoretical research, questions like exactly how many tourists the tour operators and hotel &
accommodation providers should decide to serve, and how much the theme park operators should price their tickets,
are of interest but not the primary focus. Instead, we are more interested in knowing how market equilibriums (price,
quantity, unit profit, and profit) are influenced by the factors like market scale, supply chain cost, supply chain
membership and supply chain loyalty. Additionally, this paper explores what the differences of impact between
direct competitor and indirect competitor, and how supply chain manager mark the supply chain loyalty buildup
decision in different situations.
In order to address these research questions, this paper proposes a game-theoretic framework. Simultaneous
games are used for studying inter-sector competition, horizontal sector competition, and chain competition, and
leader-follower games for studying vertical sector competition. The game is static and with full information for
simplicity. The multi-stage game is solved in bottom-up (backward) fashion. Given the demand faced by the tour
operators, each of them simultaneously chooses the number of tourists they served so as to maximize their profits.
Aggregating the equilibrium quantities of tourists for all the tour operators in a TSC gives the best response function
for theme park operator sector and hotel & accommodation providers sector as demand curves. Using the same
logical for these two sectors and combining the results, the best response function of entire TSC is obtained. Jointly
considering two TSCs shows the final equilibriums.
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