The factors affecting demand and supply in the tourism industry
The tourist industry can be affected by multiple factors, as shown by Ivanovic and Wassung (119-138). The demand is defined by psychological (motivation to visit a place because of its specific features), economic (for example, the economic situation in the world, the country of the traveler, and the destination country; currency exchange opportunities, and so on), political (intergovernmental relationships), technological (the presence of infrastructure) and sociocultural (especially tensions) factors. The supply is influenced by most of these factors including the demand itself, but its specific group is the legal one (related to the business regulations). A specific factor for demand is marketing efforts.
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The kinds of elasticity for Hilton hotels and the most important factors affect the price elasticity
Elasticity describes the dependence of one variable on another one. For example, Mankiw defines the price elasticity of demand as a measure of “how much the quantity demanded a response to a change in price” (90). This type of elasticity typically used by firms and is likely to be of interest to Hilton Hotels (McEachern 111). Other kinds may include the income or cross-price elasticity of demand. The latter defines how the changes in the price of a substitute product affect the price of the one that is being discussed (Mankiw 97-99)
The elasticity is found by dividing the percentage change in the dependent variable by the alteration in the independent one. If the number exceeds 1, the dependent variable changes significantly and is elastic; otherwise, it is inelastic (Mankiw 92). Demand elasticity depends on the factors that affect the demand, substitutes’ availability, and the type of the product: it is low for necessity goods, but luxury ones like hotel accommodations tend to be highly price- and cross-price elastic, which applies to Hilton Hotels (Mankiw 91-92).
The law of elasticity and its validity for Hilton
Hilton Hotels is a worldwide company and one of the most renowned brands in the hospitality industry (“Take me to the Hilton” par. 1). Hilton is a luxury hotel, which defines certain specifics of its customer profile (Sung et al. 125). A large portion of its clients prefers to receive high-quality service and do not mind high prices. Some consumers are attracted by the price and regard it as a sign of luxury and status. Finally, there are many loyal customers. For these groups of customers, the law of demand and typical elasticity behavior are less applicable to Hilton.
On the other hand, not all the potential customers belong to the mentioned groups, and the demand for hotel accommodations cannot be called inelastic. A study by Tran, for example, suggests that the price elasticity of demand for the most expensive hotel rooms is 1.2: it may be unimpressive for a luxury good, but it is still elastic (129). Therefore, the typical elasticity behavior applies to Hilton Hotels to an extent, and it is not completely excluded from the law of demand. If Hilton prices rise, the demand is likely to fall, especially for certain segments of the customers.
The factors affecting the perfectly competitive market types
The tourism industry is of great importance for Egypt’s economy, and several renowned brands compete for this market (Sobaih and Jones 165). For example, Hurghada and Sharm El-Sheikh rely on this sector greatly (Al-Shuwekhi par. 3). The near-perfect competition on the market defines some specifics of its price formation and demand elasticity. This type of market is characterized by such several buyers and sellers that excludes the possibility of any single of them affecting the market price (Mankiw 66). As a result, the price elasticity of demand in Hugarda tends to be guided by the laws of the market: when the demand is high (high season), the price grows significantly, but it does not lead to a decrease in the demand. However, when the season is low, the demand becomes very price and cross-price elastic.
Elasticity analysis and its importance to Hilton’s managers
Hilton is not unaffected by the law of demand, and it exists in the conditions of severe competition that are especially noticeable during the low season in Egypt, for example. As a result, Hilton’s managers, as well as any others, need to take into account the elasticity of their products and services (McEachern 111).
Al-Shuwekhi, Abdel Razek. “Sharm El-Sheikh, Hurghada lose 55% of tourism demand: report.” Daily News Egypt. 2016. Web.
Ivanovic, Milena, and Natalie Wassung. Tourism Development . Cape Town: Pearson/Prentice Hall, 2009. Print.
Mankiw, Gregory. Principles of economics. Boston, Massachusets: Cengage Learning, 2014. Print.
McEachern, William. Economics. Mason, Ohio: Cengage Learning, 2015. Print.
Sobaih, Abu Elnasr, and Elnasr Jones. “Bridging the Hospitality and Tourism University-Industry Research Gap in Developing Countries: The Case of Egypt”. Tourism and Hospitality Research 15.3 (2015): 161-177. SAGE. Web.
Sung, Yongjun, Sejung Marina Choi, Hongmin Ahn, and Young-A Song. “Dimensions Of Luxury Brand Personality: Scale Development And Validation.” Psychology & Marketing 32.1 (2015): 121-132. EBSCOhost. Web.
“Take me to the Hilton.” Hilton Worldwide Website. Hilton Worldwide, 2016. Web.
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Tran, Xuan. “Price Sensitivity of Customers in Luxurious Hotels in U.S.” E-Review of Tourism Research 9.4 (2011): 122-133. EBSCOhost. Web.