Issues in the Industrial Organisation Paradigm: a Further Application to the UK Hotel Industry

Brian Davies

Working Papers from Staffordshire University, Business School

Abstract: This paper considers the applicability of the Industrial Organisation (IO) approach to tourism with reference to the UK hotel industry in the period 1989 - 1994 with the aims of: · testing the applicability of the IO framework by using econometric techniques · identifying 'stylised facts' · examining the nature of market power within the industry Return on sales is used as a measure of performance whilst concentration and market share are the structural variables. Unemployment is used to capture macro economic effects. The reverse causality issue is investigated with market share being used as a measure of performance with, this time, concentration and return on sales as the structural variables. The main results can be stated as follows: Within this approach, market share is more readily explained than return on sales.There is some evidence of oligopoly as opposed to one of competition or contestability, within the whole industry and that firm specific factors are of importance. However, amongst the leaders of the industry, no firm seemed capable of exhibiting monopolistic behaviour given the macroeconomic situation of the period. The central conclusion appears to be that the results are highly sensitive to both the choice of model and to the definition of the industry. This suggests that future studies should not rely on average cases, but also need case study work. Econometrics, case studies and 'stylised facts' must all be seen as useful in establishing the framework and identifying theoretical structures. At least this study has been able to indicate the general applicability of the IO framework and enabled the identification of 'stylised facts' that will facilitate future work in this area.

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