Why Regulation Is Needed in Emerging Markets in the Tourism Sector

• Author: Jose María Martín‐Martín,María S. Ostos‐Rey,Jose A. Salinas‐Fernández
• DOI: http://doi.org/10.1111/ajes.12263
• Published date: 01 January 2019
• Date: 01 January 2019

Why Regulation Is Needed in Emerging

Markets in the Tourism Sector

By Jose María Martín-Martín*, María s. ostos-rey†, and

Jose a. salinas-Fernández‡

abstract. The neoclassical ideal has defended the idea that markets,

in a context of limited regulation, reach an optimal equilibrium

automatically. We analyze this assertion in an applied manner with a

case study of the emerging online market of intermediation of tourist

apartments. The lack of regulation in this market causes many social

and economic impacts on local communities, which can jeopardize

the survival of the activity. We conclude that an analysis of markets

that considers only prices results in a limited view. All externalities

and their effects on the population must be taken into account, as well

as the interests of the individuals involved, apart from profit-making.

Introduct ion

The acceptance of the essential ideas of neoclassical economics, which

are taught in universities and promoted by the political-ideological

structure, is the result of its veiled defense of the dominant relations

of production (Garcés 2012). These economic ideas influence col-

lective ideals and present some risky hypotheses as valid, although

they diverge considerably from the real dynamic of society. The role

assigned to markets by the neoclassical approach is an example of

this. Adam Smith in his book The Wealth of Nations proposed that

markets can reach successful results on their own. However, accord-

ing to Stiglitz (2000: 1442), two Nobel Prize winners, Debreu and

American Jour nal of Economics and Sociology, Vol. 78, No. 1 (January, 2019).

DOI: 10 .1111/ajes.122 63

© 2019 American Journa l of Economics and Sociology, Inc.

*Senior lecturer, Universidad Internacional de La Rioja, Spain, Department of Business.

Research interests: tourism, economic sustainability, sustainable development. Email:

josemaria.martin@unir.net

†Senior lecturer, Universidad de Granada, Department of Spanish and International

Economics. Research: tourism and the sharing economy. Email: mostos@ugr.es

‡Senior lecturer, Universidad de Granada, Spain, Department of Spanish and

International Economics. Research interests: tourism management, economic impacts,

social and economic indicators. Email: jasalinas@ugr.es

226 The American Journal of Economics and Sociology

Arrow, provided a formal mathematical proof that shows the limited

conditions under which this idea is fulfilled. Other authors—Vilfredo

Pareto, Harold Hotelling, Oskar Lange, and Maurice Allais—have con-

tributed to an understanding of the price system. According to the

evidence they present, capitalism is a market system that allows for an

optimal, efficient, and automatic allocation of productive resources,

including factors of production, as long as improper actions of the

government do not interfere.

The proposals of neoclassical economics are tempting, but they

leave many gaps in their development. Taking Weber’s work (1967:

26-27) as a reference: “Nothing is easier nor more tempting in political

economy than confusing ideals with reality.” Reflections or analyses

focused on the distribution and the general welfare of the population

are left aside. Marx ([1858] 1973), in his Grundrisse, already addressed

this fact as “the ineptitude of economists who consider production an

eternal truth while they strip from history the scope of distribution.”

These theories lack any explanation of the possible impacts that a

free market, whether it is barely regulated or unregulated, can have

on another market’s equilibrium or on the population’s basic living

conditions.

The closest concept to these ideas is externality, first described by

Marshall (1890) in a positive way as the spillover benefits of creating

industrial districts. It was Pigou (1920) who introduced negative ex-

ternalities as a cost associated with an activity that is not reflected in

the price of something. According to the neoclassical model, market

balance is achieved in a situation exempt from externalities. This is

an ideal difficult to reach and, therefore, it is not strong enough to

justify the absence of regulation in a market. This last idea is what

grounds this work. We focus on the types of problems that a new and

poorly regulated market in the online sharing economy is imposing

on traditional markets and on the welfare of the population. We study

the limits of the neoclassical model and the public policies inspired

by it. Selecting a peer-to-peer tourist rental market that uses online

platforms to exemplify the effects of unregulated transactions sets out

from two premises. First, this market was born only 10 years ago, and

so it is barely regulated. This fact puts it close to the neoclassical ideal.