ABSTRACT
The neoclassical analysis of market structure outlined in the previous chapter proved useful for identifying different types of markets and giving a number of valuable insights into aspects of firms’ conduct and performance. However, such phenomena as imperfect competition, particularly oligopoly, and uncertainty, as well as the need to explain market dynamics, are inadequately explained by traditional analysis. The development of industrial economics and other schools of thought have attempted to fill the gaps left by traditional approaches and illustrate the theme of this book not only by indicating recent theoretical developments and advanced economic analysis but also by helping to explain tourism supply. Within industrial economics, two main approaches have been used to examine the conduct and performance of firms in different types of markets. The first is the structure, conduct and performance (SCP) paradigm which has played a major role within empirically oriented studies of firms within manufacturing industries. Although it has been subject to some criticism, particularly in more theoretically based analysis, the paradigm remains a useful framework and appears to be relevant to a complex service industry such as tourism. The second, more recent approach is game theory which is used to analyse the strategies which firms adopt in relation to the actions and probable reactions of their competitors. Game theory has been applied extensively in oligopolistic situations and has vastly improved the comprehension of firms’ interactions and their outcomes in dynamic situations. It seems particularly important for understanding the behaviour and strategies of tourism suppliers.
