Slutsky equation in tourism: an empirical study in Vietnam

Abstract

ABSTRACT The purpose of the paper is to apply the Slutsky equation to the Bass diffusion model to examine the price and income elasticities of hotel demand in different tourist destinations including cultural, commercial, and coastal cities. The sample was a set of 120 points by ex-post data from the Smith Travel Research in Vietnam. Findings indicate the price in a leisure destination in the beginning of the tourist area life cycle is inelastic, whereas the prices in the business and culture destinations at the end of the cycle are elastic. This study identifies the hidden cost when demand increases in the three destinations, ultimately allowing hoteliers to effectively strategize when making price changes within their industry.