This paper examines strategic interactions among hotels and airlines in tourist destinations. It shows that when there is a single tourist destination an airline and a hotel can increase their profits by simultaneously reducing their price. An agent can lead both firms to cooperate, thus increasing consumer surplus. When there are two competing destinations, firms in one of the destinations can benefit from cooperation; however, if firms in both destinations cooperate their joint profit will fall. Finally, if a single firm operates in both destinations, then it will increase the cost of travel, thus reducing consumer surplus.
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