Private and public incentive to reduce seasonality: A theoretical model

In this article, the authors present a theoretical model to investigate the private and social incentives to reduce seasonality in a given market. They assume that consumers derive different utilities from the consumption of the same good in different seasons. The seasonal product differentiation is modelled along the lines of Gabszewicz and Thisse (Price Competition, Quality and Income Disparities, 1979) and Shaked and Sutton (Relaxing Price Competition through Product Differentiation, 1982). The authors assume that it is possible for a firm to invest in order to reduce the degree of the demand seasonality. They show that, for a wide set of parameter configuration, the optimal effort to reduce seasonality is higher from a social welfare perspective, as compared to the private producer perspective. The tourism market can represent an application of the present model. However, unlike most available literature in this field, their model provides a microeconomic basis for the evaluation of investments aimed at reducing seasonality, rather than taking a macroeconomic approach.