The Economics of All-Inclusive in Hospitality

We study all-inclusive offerings in hospitality at a mature tourism destination; and we do so as a case of product bundling in competitive markets (accommodation and complementary services). We show that all-inclusive will more likely be part of the equilibrium the more value it creates; namely, when hotel establishments enjoy cost efficiencies with, and tourists a convenience value for, the all-inclusive bundle. In general, however, because of the interdependence in tourist demand generated by the presence of fixed costs at the product level, the market equilibrium may inefficiently include (or lack) the all-inclusive offerings. Moreover, market dynamics may generate a vicious circle where all-inclusive increases over time, thus leaving room for efficiency enhancing regulation