The tour operator industry: An analysis

Abstract This paper analyzes the function and structure of the domestic tour operator industry which represents a large part of domestic tourism. The tour operator industry in the United States is polarized into a few large stable and many small less stable firms. Entry into and exit from the industry is easy, and the paper shows that from 1978 to 1985 only 34 percent of the firms remained in the industry. The tour operator's main functions are primarily to reduce information and transaction costs for the consumer and to reduce promotional expenditures for suppliers. The second part of the paper analyzes different types of package tours to the Hawaiian Islands and shows that basic package tours (accommodation and transportation only) provide a bigger discount to the consumer (15% than do inclusive tours (—3%). Suggestions are made as to how the industry may become more stable in the future.