Abstract
This study investigates how exposure to local prices changes the transaction utility of international tourists, and the role of purchasing power parity (PPP) and the use of cryptocurrency in these changes. Findings indicate that tourists’ transaction utility did not vary all that much when they visited a country with comparable PPP to their own. Meanwhile, when traveling to countries with a lower PPP, tourists enjoy a heightened transaction utility. Furthermore, using Bitcoin results in greater transaction utility than using fiat currency.
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Keywords
- Transaction utility
- Purchasing power parity
- Travellers behaviour
- Cryptocurrency
- International tourism
- Bitcoin
1 Introduction
Transaction utility represents our perceived value of getting a good deal [12]. This topic needs to be better understood and requires more investigation [3]. However, this topic was rarely touched, notably in the tourism and hospitality literature. This study thus seeks to extend past research on the topic by investigating transaction utility in the context of international tourism. It takes a novel approach by evaluating the changes in tourists’ transaction utility before and after exposure to local prices, exploring how the changes were affected by the destination’s purchasing power parity (PPP), and measuring the effect of Bitcoin usage in hypothetical scenarios.
As everyone tends to something familiar [15], it was anticipated that tourists’ perceptions of the prices of goods and services in an unfamiliar international destination would initially be based on the prices of goods and services in their home country. The expected scenarios were that tourists overestimate prices initially (the transaction utility is high) when visiting countries with lower PPP than their home country; then, it decreases as they become familiar with the destination (i.e., its currency and prices). In a different scenario, when tourists visit countries with PPP comparable to their home country, the transaction utility probably will not change much.
2 Literature Review
2.1 Transaction Utility
Transaction utility is the difference between the reference and actual prices [12]. It is a significant predictor of perceived service value, and omitting it from a model will significantly diminish its explanatory power [5]. While perceived value emphasises acquisition utility (residual pleasure) and transaction utility [12], the former better portrays post-consumption circumstances; therefore, this study focuses on the latter, which can describe pre-consumption conditions that match the context of this study.
The reference price is a person’s perception of a fair price before being exposed to new information. In this study, the international travellers’ reference prices are the prices of similar goods and services in their own country. A higher reference price than the actual price indicates a good deal, as the actual price is cheaper than expected. If the reference price is lower than the actual price, the transaction utility is negative, suggesting the actual price is more expensive than expected. Investigating how the transaction utility changes when international tourists are exposed to local prices will supplement existing research on transaction utility in tourism and hospitality, which has primarily focused on the context of hotels [5, 7] and restaurants [6, 8].
2.2 Purchasing Power Parity (PPP) and Type of Currency
An awareness of PPP and its related aspects will benefit stakeholders in tourism and hospitality. [4] used a price variable based on PPP to show that domestic tourism in less elastic conditions than outbound tourism can be improved with a pricing strategy, notably during a low season, or by enhancing innovation. [1] found that significant exchange rate volatility could diminish tourism inflows in the long run, probably because international tourists will have difficulty estimating prices in such a destination. Also, understanding this issue will help policymakers utilise tourism to balance PPP [14]. This study itself will add extant literature on PPP in tourism and hospitality by assessing its influence on changes in the transaction utility of international travellers.
Furthermore, as tourism and hospitality stakeholders must also stay up to date with the latest trends, this study explored the use of Bitcoin, measuring its impact on the changes in transaction utility. Many tourism vendors have begun accepting cryptocurrency [13], and some nations have even begun regulating its use [11].
3 Methods
This study uses a 2 × 2 experimental design with treatments of a country's purchasing power parity (lower or similar) and currency type (fiat or cryptocurrency) (See Table 1).
Participants were recruited through Amazon’s Mechanical Turk (MTurk), the most often utilised online data collection method [10]. They were US citizens selected using a convenience sampling method. This study anticipated 120 participants (30 for each scenario). More survey slots (150) were opened to accommodate unusable responses, as suggested by [2]. Two participants did not complete the survey, and 23 responses were unreasonable and eliminated (the price reference was 100% greater or smaller than the actual price). The total participant used in the analysis was 125.
At the beginning of the experiment, participants were asked to state their perceived standard (fair) prices for budget and luxury hotel rooms (in USD). Participants were then randomly allocated to 1 of 4 scenarios and showed some tourism products/services in local currency (a currency converter was provided). After being exposed to local prices, participants were given photographs of a budget hotel and a luxury hotel (without name and brand) and asked to estimate the price of a standard room in those hotels.
Non-parametric approaches were used since not all subgroups (experimental conditions) satisfied normality and homogeneity assumptions. Non-parametric alternatives of ANOVA, Wilcoxon paired test and Mann-Whitney test [9] were used to compare transaction utility before and after exposure to local prices and to compare experimental conditions.
4 Results and Discussion
4.1 Changes in Transaction Utility
The results presented in Table 2 confirm the initial assumption that tourists visiting destinations in countries with lower purchasing power parity (PPP) initially overestimate prices. This is especially evident for budget hotels, where transaction utility before being exposed to local prices reaches 6 times the actual price. Even after seeing local prices, transaction utility remains positive (>1), which explains that the actual price was a good deal. Same goes for luxury hotels, but with a lower scale of change. Otherwise, in both budget and luxury hotels, the Wilcoxon paired test shows a significant difference in transaction utility before and after exposure to local prices.
Meanwhile, for visitors visiting countries with comparable PPP, in the case of budget hotels, the tests demonstrate no significant difference in transaction utility before and after exposure to local prices. In the case of luxury hotels, the Wilcoxon test yielded significant results, and the Mean value shows that transaction utility turned negative (<1). This means that tourists perceive that luxury hotel pricey after being familiar with the local prices.
The Mean value after exposure to local prices was higher in the cryptocurrency subgroup than the fiat-currency subgroup. This could be a sort of risk mitigation from tourists due to the high volatility of cryptocurrencies, in which when using cryptocurrencies, it is sensible to budget higher.
4.2 The Effect of Purchasing Power Parity and Type of Currency
The Mann-Whitney test using the difference in transaction utility before and after being exposed to local prices reveals that variations in the transaction utility of budget hotels were strongly affected by purchasing power parity (Asymp. Sig. [2-tailed] =  <0.001). However, the difference was not statistically significant for luxury hotels (Asymp. Sig. [2-tailed] = 0.2497).
The use of fiat currency or cryptocurrency had no significant effect on changes in transaction utility in both budget and luxury hotels (Asymp. Sig. [2-tailed] = 0.3232 and 0.4587, respectively).
5 Implication and Future Research
This study adds to the existing literature on international tourism by explaining changes in transaction utility before and after exposure to local prices in the destination country, as well as providing an overview of the effect of purchasing power parity (PPP) and the use of cryptocurrency in these changes.
In practice, this study provides information that stakeholders can utilise to examine target markets and pricing strategies. For example, destination management organisations (DMOs) and budget hotels can consider targeting international tourists from countries with higher PPP; the high transaction utility before being exposed to local rates implies a big gap that providers can exploit to sell at higher prices, and at the same time, the transaction utility that remains high after exposure to local prices also benefits these tourists. The results may also encourage early adopters of cryptocurrency in tourism and hospitality because it has been discovered that utilising cryptocurrency results in tourists having a higher fair pricing estimate than when using fiat currency.
Future research can include the intention to purchase the deal or assess post-consumption factors such as acquisition utility, perceived quality, or deal evaluation to obtain a complete picture of the effect of PPP and the use of cryptocurrency. A lab-based experiment employing biometric devices will also be highly intriguing because it will demonstrate whether the provided settings (e.g., the use of Bitcoin) elicit distinct emotional reactions.
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Muharam, I.N., Tussyadiah, I. (2023). The Effect of Purchasing Power Parity (PPP) and Cryptocurrency Use on Changes in the Transaction Utility of International Tourists. In: Ferrer-Rosell, B., Massimo, D., Berezina, K. (eds) Information and Communication Technologies in Tourism 2023. ENTER 2023. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-25752-0_11
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