A model of overtourism, tight markets and travel costs: High prices and the rise of new destinations

In recent years, the growth in tourism demand has been tremendous, increasing investment costs in most major destinations and compelling hospitality firms to seek alternative investment opportunities. This paper proposes a novel theoretical model to study the impact of overtourism, tight markets, and declining travel costs on tourism investment decisions in well-established prime destinations and emerging secondary destinations. Through different mechanisms, we find that overtourism, tight markets, and lower travel costs have favored investment decisions in secondary destinations compared to prime destinations. Our results indicate that the latter two factors have been key drivers of the rising prices observed across the tourism industry. Firms have increased prices to capitalize on consumers’ growing travel preferences and falling travel costs and to offset their own rising costs. Our findings not only explain the increase in tourism prices but also highlight the investment diversification trend toward emerging new secondary destinations.