Blockchain Tourism Use Cases: Agency Costs
Blockchain will change the tourism industry and can lower agency costs. Agency costs are the sum of monitoring expenses by the principal, bonding efforts by the agent.1 They are caused by the principal’s desire to control and monitor the agent. So that the agent performs the tasks in the best interest of the customer. But there is a conflict of interest and strategies for solving incentive problems.2 Therefore tourism research tries to explain the owner/manager relationship in the tourism industry.3 They also try to understand the relationships between hotel operating companies and hotel owning companies.4
Blockchain can have a huge impact on communication flows and relationships between travelers and agencies. In order to allow for efficient and effective communication flows, it is crucial to specify the exact role of each market participant. It is also important to clarify rights and duties since this subsequently determines the allocation of tasks as well as the flow of information. Blockchain has the potential not only to alter communication flows but also to change the responsibilities associated with specific roles. Some roles might even become redundant.
However, it might as well be the case that existing relationships render Blockchain unnecessary. Especially in those cases where trust takes the part in the functioning of stable business relationships. Blockchain can also generate trust by increasing transparency. Thus, this will allow faster transaction connecting business partners across regions. So we don’t need a middleman anymore. As a result, this can have a huge impact on existing business relationships. Also by removing various layers from the value network, bookings can be made easier and faster.
Blockchain Tourism Use Cases: Transactions Costs
Blockchain will change the tourism industry and can reduce the transaction cost. So transactions costs include search and information and agreement costs. Thus, an efficient organizational structure determines the size of an organization and its interchange with relevant markets.5
Blockchain has the potential to disrupt existing market and structures. So with the advancement of platforms such as Airbnb the sharing economy grows. Thus, transaction costs and formal contracts make you trust network cooperation among the tourism industry.7
Blockchain may change existing market structures while it is currently unclear in which direction. So it is seen as a tool which allows for direct connection with customers. As a result, the communication structures may change. Direct information in combination with accessibility and immutability can lead to an increase in communication speed. But it may also lead to centralized information systems, which provides an advantage for companies that already dominate the market.
Blockchain can also lower costs because the market structure can be more efficient. But it can also increase the costs due to the recording of each and every transaction in combination with legal requirements.
So the increased transparency is one of the major drivers for future developments. As a result, it will allow customers to directly connect with service providers.
Blockchain Tourism Use Cases: Resources
Blockchain will change the tourism industry and optimizes the use of resources. So organization’s internal resources are used to outperform in the market. As a result, it helps to create a competitive advantage and an even smaller subset that accounts for long-term superior performance. In order to sustain a competitive advantage, companies need to possess and protect internal resources. So those resources comprise all tangible and intangible assets that a firm uses for choosing and implementing its strategies.8
With Blockchain, you can create applications on top of this platform that can lead to superior performance and competitive advantage. For example, an application involves measures that make the transportation system more efficient. As a result you could implement new accounting and business intelligence procedures to the complete restructuring of supply chains. But Blockchain thus poses a potential risk for companies that lack the financial means and knowledge to participate in this development.
Blockchain Tourism Industry and Network
Blockchain will change the tourism industry and with it the network relationships. So existing network structures can be severely disrupted when individual parts of the network change.9 For companies, it is a necessity to maintain good relationships with their customers. Therefore a high importance of reputation is needed. As a result, Blockchain can improve customer service by a lot. For example, guaranteeing reservations, increasing transparency and offering additional services.
Blockchain can also remove middlemen and give the customer the opportunities to easily establish business relationships with companies.
So Blockchain guarantees the execution of contracts and will likely lead to increased trust that is based on the availability and immutability of information. Thus, network structures will be fundamentally altered. Given that Blockchain is a peer-to-peer network without any built-in control structures, the overall structure of the existing network can change a lot. So this will also influence all kinds of business relationships in the tourism industry.
So Blockchain has the power to increase the transparency of transactions, It has the potential to make huge changes in existing business relations. So the level of trust needed to form business relationships may decrease and no need for a middleman occur as a result. Thus, the changes in transaction costs caused by Blockchain which will have a substantial impact on organizational structures. So at the same time Blockchain will reduce the costs in some areas and increases in others. They will lead to the adaption of organizational and market structures.
Blockchain also constitutes a new resource if applied correctly. So it will also impact inter-organizational processes and management structures that will affect an organization’s level of competitive advantage. This is especially important in an industry that is as interconnected as the tourism industry. In addition, Blockchain will impact relations between various actors in the tourism network. So the overall importance of existing relationships might decline due to the potential of Blockchain to ensure trust and transparency.
- Jensen, M. C., and Meckling, W.H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, Journal of Financial Economics 3(4), pp. 305-360.
- Eisenhardt, K. M. (1989). Agency Theory: An Assessment and Review, Academy of Management Review, 14(1), pp. 57–74)
- Guilding, C., Warnken, J., Ardill, A. and Fredline, L. (2005) An Agency Theory Perspective on the Owner/Manager Relationship in Tourism-Based Condominiums, Tourism Management 26(3), pp. 409-420.
- RodrÍguez, A. R. (2002). Determining Factors in Entry Choice for International Expansion. The case of the Spanish Hotel Industry, Tourism Management 23(6), pp. 597-607.
- Coase, Ronald H. (1937). Thus, the Nature of the Firm, Economica 16(4), pp. 386-405.
- Akbar, Y. H. and Tracogna, A. (2018). The Sharing Economy and the Future of the Hotel Industry: Transaction Cost Theory and Platform Economics, International Journal of Hospitality Management 71, pp. 91-101.
- Czernek, K. Czakon, W. and Marszałek, P. (2017). Trust and Formal Contracts: Complements or Substitutes? A Study of Tourism Collaboration in Poland, Journal of Destination Marketing & Management 6(4), pp. 318-326.
- Wernerfelt, B. (1984). So a Resource-Based View of the Firm, Strategic Management Journal 5(2), pp. 171-180
- Latour, B. (2005). Reassembling the Social: An Introduction to Actor-Network-Theory. Oxford: Oxford University Press.