The economics of destination cards

Destination cards have been recognized as effective tools for promoting tourism destinations. However, their role as mechanisms for coordinating tourism service providers within the destination remains underexplored. We address this gap by developing an enriched version of the Hotelling price competition model to investigate the welfare effect of destination cards. We assume that a destination with two price-setting attractions and one complementary good (transportation) introduces a card offering discounts on attractions and free access to local transportation. We find that the card is welfare-improving, although it also alters the pricing strategy of the attractions and, under certain conditions, might reduce tourist surplus. • Destination cards allow to exogenously introduce coordination within a destination. • We develop an enriched version of the Hotelling price competition model. • We investigate welfare effects with and without destination cards. • We show that total welfare never decreases and that producer surplus increases. • We derive conditions under which consumer surplus reduces.