The hidden cost of coordination in tourism destinations

This paper revisits the canonical result that coordination among suppliers of complementary tourism services–such as accommodation, transport, and local activities–typically raises profits while increasing output and lowering consumer prices. We introduce a novel mechanism: labor market feedback. When firms share a common labor pool, coordination internalizes a cost externality that can overturn the traditional outcome. Extending the Cournot framework to include an upward-sloping labor supply, we show that under tight labor markets, coordination amplifies firms’ dual market power in product and labor markets. This enables firms to restrict output, raise prices, and depress wages, even as profits rise. Our findings challenge the established “anticommons” logic and carry implications for destination management and competition policy.