Variations in Tourist Price Sensitivity: A Stated Preference Model to Capture the Joint Impact of Differences in Systematic Utility and Response Consistency

This article evaluates variation in tourists' response to price. A random utility theory stated preference model is used to estimate the joint impact on price sensitivity of differences in systematic utility between tourists and travel products and differences in the consistency with which tourists respond to price. Implications of the proposed model are formulated. They indicate that as the systematic utility of a travel product increases and/or its price decreases (all else being equal), price sensitivity decreases. Three hypotheses of tourist price sensitivity also are investigated by using survey data on tourists' stated preferences for transportation options in one-day excursions. As expected, the results show that there is a systematic effect of income on price sensitivity, with high income tourists being less price sensitive than low income tourists. More surprisingly, tourist income, and to a lesser degree education, also affect tourist price sensitivity by influencing the consistency with which tourists respond to price. In particular, tourists with higher incomes and lower education levels are found to be less consistent in their response to price, which causes their price sensitivity to be lower. Thus, there is a double effect of income on price sensitivity: not only do high income tourists have a lower systematic response to price changes, but their response is also less consistent, which further reduces their price sensitivity. However, this effect is compensated in part because high income tourists tend to have a high education level, which increases response consistency and therefore price sensitivity.