Regional Competition and Sustainable Development: A Game Theory Model for Tourism Destinations

Abstract

The numerous side effects that accompany a rapid growth in tourism weaken the justification for an aggressive tourism development strategy. By applying a game theoretical framework to the context of strategic interactions between competitive and complementary destinations within a region, this paper shows that, for the sake of the destination's sustainable development, rational decision makers should choose moderate strategies instead of very aggressive ones.

Notes

We may consider products offered by a destination as a package of different components, mainly including miscellaneous services offered by private (or public) entities and the enjoyment of the environment. The growth process of a tourism economy is characterized by a complex interaction between the capital accumulation of private firms and the degradation of the environment. If investment in tourism results in the acquisition of environmental rents, profits may lead firms to accumulate excessive tourism capacity while the destination's attractiveness and competitiveness decreases. For this reason, tourism development strategy must be balanced to produce the optimal combination of services and environment to maintain and enhance destination's competitiveness.

The symmetry assumption refers to two destinations in the same region with similar tourist attractions. This assumption is in many cases viable. Differences in the physical or economic sizes of the destinations (or the countries they are in) are not that important because tourists have already made their decision on the type of vacation they want and have prepared certain budget. Take, for example, Sabah, Malaysia and Bali, Indonesia. The former is larger in geographical size and a wealthier local community than the latter. However, both provide similar tourism products: sunshine, beaches, ocean, luxurious hotels, exotic cuisines and relaxing spas. Also, the fact that they are in the same geographical region indicates comparable travelling costs, which often makes up the major part of a distant tourist's budget. In fact, tourists outside the region usually consider Sabah and Bali closely matched rival destinations despite their other differences.

The mixed-strategy equilibrium is actually a threshold of the magnitude of tourism activities, beyond which the marginal utility cannot cover the marginal disutility, so that the overall net benefit (material benefit minus side effects, supposing side effects can be measured in monetary units) declines as depicted in a″. However, the destination may not be able to perceive the actual decline, as it changes its preference to be more ignorant about side effects.

The expected loss is supposed to be higher (in the case where Y acts passively) than if Y acts aggressively, as X may be overwhelmed by tourists and suffer from severe side effects due to its relative aggressiveness compared to its competitor.