University of Buckingham, UK

Abstract

The UK fully inclusive tour industry is characterized by (a) demand volatility, (b) an oligopolistic market structure and (c) and a product that cannot be stored. The interplay of these factors leads to an asymmetric reaction of industry pricing to demand forecasting errors. Demand underestimation results in stable and relatively high prices. However, demand overestimation ensures price and market structure instability. During such periods, lowering price is unlikely to yield a stable outcome for the industry. In fact, there are forces working against prices falling to levels commensurate with demand. Concentration of unit ownership at the margin, and not elsewhere determines the extent of this price rigidity.