Analysing the markups of the tourism industry

Abstract

This study analyses the factors influencing markups in tourism companies, distinguishing between accommodation and catering activities due to their inherent heterogeneity. Given the competitive nature of the tourism industry, understanding the relationship between prices and costs is essential. Using data from Spanish tourism companies between 2017 and 2021, markups are estimated through the production function approach that incorporates labour and material returns to address identification issues. The econometric analysis reveals significant differences in the determinants of the markups between the two activities. In the accommodation sector, firm size, unit labour costs, and expansion plans play a key role in increasing markups, with companies also able to pass capital cost increases onto prices. In contrast, markups in the catering sector are influenced by firm age and labour productivity, while firm size and capital costs have no significant effect. External factors related to firm location also influence markups, and the COVID-19 pandemic had a different impact, as markups in accommodation companies experienced sharper declines than those in catering companies. These findings emphasise the need for tailored strategies to enhance competitiveness. Accommodation companies should focus on cost optimisation and leveraging economies of scale, while catering companies should prioritise productivity improvements and operational efficiency.