Optimal choice of quality in hotel services

A debate oil the sustainability of mass tourist destinations and the need to reorient them towards the high quality segment has recently arisen. However, it has not yet been studied whether Such a shift in the specialization pattern would result in an increase of efficiency. In this paper, a vertical differentiation duapoly model in which hotels compete in both quality and prices is used. The market duopoly and the Social planner solutions are compared, and different external costs are considered. It is found that efficient solutions allow for the coexistence of both the high and low quality segments, and that an expansion of the fortiler does not necessarily improve welfare.