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Identify the assignment question: Analyze factors affecting demand and supply in Egypt’s tourism industry, assess the validity of the law of supply and demand for Hilton hotels, determine sunk costs in the tourism industry, and explain factors influencing perfect competitive markets with examples.

Paper For Above instruction

The tourism industry in Egypt, especially in regions like Hurghada where Hilton Hotels operates, presents a compelling case for analyzing demand and supply dynamics, market structures, and costs such as sunk costs. Understanding these concepts is crucial for assessing market efficiency and competitiveness in the context of Egypt’s tourism sector.

Introduction

Egypt’s tourism sector has historically been a significant contributor to its economy, accounting for over 10% of GDP and serving as a major source of foreign exchange earnings (World Bank, 2022). The country's rich cultural heritage, strategic geographical location, and competitive pricing have positioned Egypt as a leading tourist destination in the Arab world and globally. However, recent political instability, notably following the 2011 revolution, has severely impacted tourism flows, exemplifying how external shocks can influence demand and supply in this sector (Kelley, 2015). This paper examines key factors affecting demand and supply for the tourism industry in Egypt and Hilton Hotels specifically, evaluates the applicability of laws such as supply and demand, explores the concept of sunk costs within this context, and discusses the characteristics of perfect competition with suitable examples.

Factors Affecting Demand and Supply in Egypt’s Tourism Industry

Numerous determinants influence the demand and supply for tourism services in Egypt. Key demand factors include economic conditions of source countries, geopolitical stability, tourism promotions, currency exchange rates, seasonality, and perceptions of safety. The economic prosperity of tourists, driven by their home country’s income levels, directly impacts their willingness and ability to travel, as indicated by the high-income elasticity observed in luxury hotel services like Hilton (Huang & Hsu, 2020). Conversely, geopolitical instability and regional conflicts, such as the Libyan crisis, diminish demand due to heightened perceived risks (Famangzhouli & Wang, 2021).

Supply-side factors encompass infrastructure quality, transportation facilities, hotel capacity, government policies, and competition level. In Egypt, government investments in infrastructure and international promotion have historically increased capacity and attractiveness (El Baz et al., 2019). The number of hotels, including international chains like Hilton, influences supply, while availability of resources such as fuel and low-cost labor affects operational costs.

Validity of the Law of Supply and Demand for Hilton Hotels

The law of supply and demand remains valid in the context of Hilton Hotels operating in Hurghada. This law states that, ceteris paribus, an increase in demand raises prices, prompting suppliers to increase supply, and vice versa. In Hurghada, the market is characterized by numerous price-takers with no significant barriers to entry, which confirms the applicability of this law (Mankiw & Rashwan, 2015). For example, during peak seasons, increased tourist influx drives up hotel prices, attracting more suppliers—hotels expand capacity or new entrants enter the market, exemplifying the law’s validity. However, during crises or off-season periods, demand drops sharply, and prices may become inelastic or decrease substantially, demonstrating the dynamic nature of demand elasticity (Kuo & Hsu, 2020).

Sunk Costs in the Tourism Industry

Sunk costs refer to expenses that have already been incurred and cannot be recovered. In the tourism industry, these include investments in hotel infrastructure, renovations, licensing fees, and marketing campaigns. For Hilton Hotels in Egypt, substantial initial investments in property acquisition, building, and branding are sunk costs once made. If the market becomes unfavorable, these costs cannot be recovered, which influences managerial decisions on continuing operations (Hitt et al., 2019). Moreover, marketing and promotional expenditures, often significant, are sunk costs in efforts to attract tourists, emphasizing the importance of strategic planning to avoid frivolous spending.

Factors Affecting Perfect Competitive Markets with Examples

A perfect competitive market exhibits numerous characteristics: a large number of buyers and sellers, homogeneous products, free entry and exit, perfect information, and no single participant has market power. In the tourism sector, the market for small, local tours or transportation services may approximate perfect competition, especially where products are standardized (Krugman & Wells, 2020). For example, shared taxi services in tourist hotspots can resemble perfectly competitive markets because they are homogeneous, and entry or exit is relatively easy.

Conversely, sectors like hotel chains or luxury tourism are less perfectly competitive due to brand differentiation, economies of scale, and barriers such as licensing and capital requirements, which limit perfect competition (Stiglitz, 2019). Understanding these factors helps policymakers and business strategists craft appropriate competitive strategies and regulatory policies.

Conclusion

The Egyptian tourism industry exemplifies the complex interplay of demand and supply factors, external shocks, cost structures, and market types. While the law of supply and demand generally holds, factors such as geopolitical instability and seasonality create fluctuations and deviations. Recognizing sunk costs aids managerial decision-making in a highly competitive environment, especially amid political and economic uncertainties. Furthermore, the level of market competition varies across segments, with some sectors approaching perfect competition and others characterized by monopolistic or oligopolistic features. Analyzing these elements is vital for stakeholders aiming to sustain growth and competitiveness in Egypt’s vibrant tourism industry.

References

• El Baz, D., Moustafa, A., & Abou-Shouk, M. (2019). Growth and Constraints of Tourism Industry in Egypt: A Historical Perspective. Journal of Tourism Research, 30(2), 45-62.
• Famangzhouli, Y., & Wang, L. (2021). Geopolitical Risks and Tourism Demand: Evidence from Egypt. International Journal of Tourism Management, 52, 124-134.
• Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2019). Strategic Management: Concepts and Cases. Cengage Learning.
• Huang, Y., & Hsu, C. (2020). Consumer Behavior and Price Elasticity in Luxury Hotels: Evidence from Tourism Markets. Tourism Economics, 26(3), 414-429.
• Krugman, P. R., & Wells, R. (2020). Economics. Worth Publishers.
• Kelley, R. (2015). The Impact of Political Instability on Tourism Demand: An Analysis of Egypt. Journal of Hospitality & Tourism Research, 39(4), 547-569.
• Kuo, C., & Hsu, C. (2020). Seasonality and Demand Elasticity in Tourism Markets: A Case Study. Journal of Travel & Tourism Marketing, 37(2), 148-161.
• Mankiw, N. G., & Rashwan, M. H. (2015). Principles of Economics. Cengage Learning.
• Stiglitz, J. E. (2019). Economics of the Public Sector. Norton & Company.
• World Bank. (2022). Egypt Tourism Sector Development: Review and Future Outlook. World Bank Publications.