A Game-theoretic Approach to Choice of Profit and Revenue Maximization Strategies in Tourism Supply Chains for Package Holidays

Enterprises in a tourism supply chain (TSC) often optimize their businesses by adopting and operating profit or revenue maximization strategies. This paper investigates the conditions under which these strategies are preferred. We consider a TSC consisting of three sectors: a theme park operator, tour operators and accommodation providers. Simultaneous non-cooperative games are used as decision models of individual enterprises within the same sector while a two-stage sequential game is used to coordinate tourist quantities between the three sectors that form the two layers of the TSC. The theme park determines the admission price, while the accommodation sector achieves market clearing prices through quantity competition. After learning the decisions of the theme park and the accommodation sector, the tour operator sector decides final price of package holiday through quantity competition. Several observations are derived from equilibrium solutions. First, tour operators and accommodation providers that select the revenue maximization strategy obtain larger market shares and profits than those that select the profit maximization strategy, while the theme park operator generally prefers enterprises in the other two sectors to select the revenue maximization strategy. Second, the profit maximization strategy is a better choice when all enterprises in each of the sectors choose the same strategy. Finally, if tour operators and accommodation providers are free to choose their own strategies, there is a market equilibrium where profit and revenue maximization strategies could coexist.