Intermediaries as quality assessors: Tour operators in the travel industry
SourceInternational Journal of Industrial Organization
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Intermediaries often arise in order to facilitate trade in markets characterized by asymmetric information. In the travel industry, policymakers have tried to address information asymmetries by providing hotel ratings. We show that those ratings are noisy indicators of quality because of the use of nonuniform standards across countries and limited information available to policymakers. Tour operators use their specialized knowledge to produce better ratings which are useful for comparing hotels within a country, as well as across countries. Intermediation by tour operators provides a better matching of quality with price and leads to a more efficient market outcome. © 2007 Elsevier B.V. All rights reserved.