Service-enhancement Investments and Price Competition in a Hotelling Model

Abstract

This paper conducts a study on the competition of service and price under the circumstances of duopoly in the Hotelling linear market, of which the results indicate that the unit variable cost of service level upgrade is large, the service investment undertaken by each firm is insufficient. Besides, we have also taken the situation of government price regulation into consideration, showing that proper price regulation is available to stimulate investment, and the government can apply regulated prices to effectively controlling the level of investment in services.

What makes Ultra-low-price tour agencies survive in China tourism market?

“…Hotelling's Principle of market competition is developed by Harold Hotelling in 1929 [2], the principle refers mainly to spatial competition. It can be applied to a firm's location decision [3], price competition [4], or in this example, to analyse price competition among travel agencies.…”