Tourism and digital economics

The purpose of this chapter is to investigate how digital technology (DT) has changed economic activity in tourism markets. The main changes caused by DT discussed here are reductions in search, tracking, and verification costs. The introduction of DT to tourism markets was expected to increase competition and welfare based on existing economic models. Indeed, empirical evidence suggests that lower search costs have led to a decrease in prices but not in price dispersion, and to an improvement in variety and matching. Lower tracking costs were initially expected to help tourism firms offer more suitable products, whereas lower verification costs were expected to improve reputation and trust information. However, accumulating evidence shows that firms use these changes to exploit the vast amount of information available to their customers, and by applying recent innovation and analytical tools, they gain market power and take us away from the desirable competitive environment.