Having the above in mind, this chapter first reviews briefly the approaches adopted in economics with regard to central issues concerning the market environment and the ways in which this can influence the structure and behaviour of tourism firms.
The main schools of thought which are relevant to industrial economies and can assist in the explanation, as opposed to the description, of tourism supply and changes in it are discussed.
Therefore, elements of the Austrian school and behavioral, evolutionary, institutional and psychological economics are outlined.
The SCP paradigm is then explained in detail, encapsulating among others the basic tenets of the theory of the firm concerning output, costs, pricing decisions, revenues, profits and losses under the various competitive structures of the markets within which consumers and producers interact.
Economic models of different types of market structure provide explanations of the operation of firms under well-defined conditions, each type of market structure being distinctly identifiable.
Although in reality such conditions may be approximated to rather than attained, the models are, nevertheless, useful in going beyond mere description by providing explanations of firms' behavior and predicting the short- and long-run outcomes of different market situations.
This facilitates the identification of factors likely to be of importance in tourism supply, particularly with respect to the nature and extent of inter-firm and inter-sector competition and the consequent implications for consumer welfare.
The SCP paradigm is structurally intertwined with policy-making, hence relevant issues such as competition and regulation policy, taxation and subsidization and crisis management are subsequently discussed in the context of tourism.
The SCP discussion will conclude with an evaluation of the contribution and limitations of the approach.
The role which game theory can play in explaining the strategies of tourism firms in a dynamic framework and the associated changes in the structure of tourism markets will be examined subsequently.
Different types of games are identified and alternative scenarios are evaluated to highlight complexity in corporate rivalry. Finally, the chapter concludes by providing an overall assessment of the various theoretical approaches on tourism
supply.
In this way it prepares the reader for Chapter 5, which presents the economic profile of all the major tourism industries, considering among others the most recent developments at a policy level.