Coordination of complementary tourism supply through a destination card: The pursuit of profitability in the presence of a foreign tour operator

Abstract

A destination card has been widely used by destination management organizations to coordinate the complementary tourism supply. Such coordination, which involves pricing a destination card, is challenging when a foreign tour operator is present. Though the literature shows that cooperative pricing between a destination management organization and a tour operator increases total profits, the most advantageous profit sharing for a destination has not been addressed. With a theoretical model of base and add-on products, this paper identifies the arrangement between a public destination management organization and a foreign tour operator that will accrue the highest profits for a destination. It is found that the most profitable option for a destination is a cooperative agreement in which the foreign tour operator is offered the same profits as a price leader under non-cooperation. This result comes from the fact that non-cooperation entails an unstable situation in which the tour operator is not willing to relinquish price leadership. The findings are of practical interest to help achieve economic sustainability in tourism destinations that rely on foreign tour operators and seek to coordinate their complementary tourism supply.