Renovation and sustainability in hospitality: The danger of concentration and less competition

Abstract

Most touristic destinations require enormous property renovation and environmental sustainability investments. This study attempts to anticipate the impact of these investments in the accommodations industry in terms of market concentration and competition. We propose a theoretical model that highlights two particularly concerning scenarios: the “unrenovated” and the “partially renovated” equilibria. In the former, accommodation providers delay their sustainability investments as long as legally possible, while in the latter, only some accommodation providers invest and secure a leading position. The later scenario is more concerning in terms of competition and market concentration as it places firms in asymmetric positions. The former scenario is more concerning in terms of environment and the destination’s future as firms fail to execute renovation and sustainability investments. In order to deal with this problem, we analyze several policy measures and argue that subsidies are likely to be the most effective policy. This paper aims to open debate on these crucial issues.