Inter-group competition through joint marketing efforts and intra-group Cournot competition

In service industries such as the tourism industry, each firm in a given market faces intra-market competition in relation to quantity setting as well as inter-market competition regarding promotional activity. This study investigates whether collusion in relation to quantity setting and/or promotional activity in these markets is simultaneously beneficial for each firm. In particular, it examines the following four cases: double collusion, single collusion in relation to promotion, single collusion in relation to quantity setting, and competition. We demonstrate that double collusion does not always generate the largest profit for each firm, and that competition may generate the largest profit, which is contrary to conventional wisdom. Moreover, competition is always socially desirable. The novel contribution of this study is the analysis of what happens in terms of each firm’s collusive promotional activities, demonstrating that collusive promotional activities bring about overpromotion that reduces a firm’s profit. Furthermore, single collusion in relation to quantity setting competition results in overpromotion and a reduction in the firm’s profit. Thus, our main contribution is to illustrate the inefficiency of these collusion mechanisms.