Game-Theoretic Approach to Tourism Supply Chain Coordination under Demand Uncertainty For Package Holidays

Abstract

Demand uncertainty is one of the most significant characteristics of the tourism industry. In a typical tourism supply chain (TSC) for package holidays, multiple tour operators reserve rooms from a hotel chain in advance according to their demand predictions. Discrepancies between demand predictions and actual demand lead to shortages or unused room reservations, which inevitably leads to reduced profits for the tour operators concerned. This article examines different TSC coordination strategies to determine how they can be used to help alleviate such negative effects. A game-theoretic approach is used to analyze the different coordination relationships between TSC players. Two coordination programs are discussed. The first is a horizontal coordination program in which tour operators exchange shortages or unused reservations with each other. The second is a vertical coordination program in which tour operators trade shortages or unused reservations with hotel chains. Game models are established and analyzed for the two coordination strategies and uncoordinated conditions, respectively. The analytical results suggest that both coordination strategies can be used to reduce the negative impacts of the demand uncertainty. The results also show that the horizontal coordination is preferred to the vertical coordination when the competition among tour operators is fierce.