The endogenous nature of price variables in tourism demand studies.

A few studies in the tourism demand research deal with endogeneity of a price variable, assuming that price is not predetermined. This study proposes and tests a nonrecursive econometric model specifying a jointly dependent relationship of demand and price. Demand for a given segment is hypothesized to be affected by both demand and price of other segments in question. The variables affecting price are hypothesized to have an indirect effect on demand through adjustments of price in response to changes in demand. The incorporation of simultaneous equations model, due to endogenous variables in the right-hand side of demand equations, makes it possible to analyze the effects of market mechanism on demand. The results reveal that a cross-segment substitution effect on the demand side is quite significant for the international lodging market and the increase of price of a market segment increases the demand for other segments. The results also confirm that the market price of lodging services is related to demand and supply influences at the same time.