Author(s): Clement A Tisdell
Background information is provided on seasonal variability of tourism demand giving examples of within year fluctuations in prices for tourism services. Existing views about the economic (financial) effects on businesses of this variability are outlined. Reasons why the theory outlined here is an important contribution to the literature are given. Using Jensen’s inequality (and its mathematical generalization), this contribution shows how increased seasonal (periodic) variability of demand for tourism services can increase the annual profit of a tourism enterprise and the producers’ surplus of a corresponding competitive segment of the tourism industry experiencing this increased variability. These financial consequences are at odds with those usually assumed in the tourism literature and support a different set of policy conclusions. Conditions are identified which result in these effects being magnified and account is taken of the fact that a tourism business’ supply of services is often subject to capacity utilization constraints. A novel feature is that allowance is made in the theory for the possibility that variations in the market demand for tourism services may alter the prices of factors of production.