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Tourism Economics


Kyo Thaw

on 13 September 2010

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Transcript of Tourism Economics

Discuss the meaning of the terms vertical and horizontal integration among firms and provide examples from the tourism and hospitality industries. What are the advantages and disadvantages of integration strategies for the firms involved and for the consumers? Minami Taira
Kyo Thaw
Debbie Lim Presentation Overview Thank you for listening to our presentation. Conclusion By: Introduction
Advantages and Disadvantages
Conclusion Horizontal
Integration A firm merges with another firm in the same industry at the same stage. E.g Hotel & Hotel occurs when companies at the same level in the distribution chain, or in the same industry sector, merge voluntarily or are the subject of a takeover bid.

common in the hotels sector, where companies such as Forte and Bass achieve economies of scale by controlling the operation and marketing of large numbers of individual hotels. Normally within the hotel and airline sector. Vertical
Integration Examples Hilton Worldwide Luxury

Full Service

Focused Service

Timeshare A firm takes over or merges with another firm in the same industry but at the different stages of production. E.g Airline & Hotel Between different tourism sector.

Vertical integration of hotels and other areas, particularly in gambling as well as movement into hotel ownership by non-accommodation Corporation.

Occur most frequently in tourism industry is between hotels and restaurants , although restaurants invariably precede the hotels (e.g. Marriott & Ritz-Carlton : emerged from restaurant / Forte, before merged with Trust house: owned both luxury hotels and fast food restaurant)
Examples Car hire companies offered potential source of operational linkages between airlines and hotels, which occupy and interim position within the tourism industry. (Avis & Hertz: major attempts at vertical integration and have agreements with airlines and offices within airports.)

Avis acquired in 1965 by ITT-> create synergy with ITT’s Sheraton hotels subsidiary ,but is forced to sell in 1972 by the US Trustee Department. Japan Airlines Company Advantages & Disadvantages Advantages Horizontal and vertical integration have been seen as determining the profit rates of an industry.
Permit economies of scale
Permit innovation
Product differentiation
Cost reduction
Reduce the transaction cost
Can gain competitive advantage over equally efficient rivals
Reduce the competition
Access to different market segment Disadvantages Less motivation to produce higher quality of service

Might not be succesful
~For e.g
- Club Méditerranée
Failed to diversify into air transportation

- Hyatt
Hyatt subsidiaries to amalgamate with Braniff Airlines and subsequently with Pan Am Consumer Advantages & Disadvantages Advantages more choices due to product differentiation. Disadvantages Horizontal & vertical integration should produce greater economies of scale and lower unit cost.

It can also help to reduce the competition and to increase in price lead to increase profit. Reference List Hwang, J., Hong, A. & Lee, D. (2010).Merger Efficiency Analysis of Horizontal and Vertical Intergration in Korea’s Cable TV Industry. The Business Review. 15 (1), 179-186.
Lafferty, G. & Fossen, A. V. (2001). Integrating the Tourism Industry: Problems and Strategies. Tourism Managment. 11, 11-19.
might lead to a decrease in consumer confidence level ~ the consumer that have low income might not have enough buying power to purchase the service that
are provided by the hospitality industry.
~ this may lead to customer to purchase the service that provided by the cheap hotels, motels or low budget airlines. can enjoy more higher and better quality
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