This paper presents a market structure, conduct, performance model (SCP) of industrial economics to estimate causes and effects among the international tourist hotel industry. Previous literature could not confirm the causality of the hotel industry, therefore, this paper develops a comprehensive model, based on realistic data of hotels, which allows the analysis of the system through three simultaneous equations, market share, advertising, and profitability. In a sample of 360 Taiwanese international tourist hotels, from 1995-2006, three-stage least squares results indicate that: (1) two-way causes and effects exist between the market structure and strategic behavior, which is detected from the incentive pattern of the SCP model; (2) a brand positive effect shows on the market share; (3) a firms’ profitability is positively, and significantly, impacted by market share, but is affected negatively by total operating costs and capital intensity, which confirms hotel industry issues regarding capital.
Key words: Hotels, market structure, conduct, performance.
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