Tourism Economics, 2012, 18 (2), 265–279 doi: 10.5367/te.2012.0121 Pricing European package tours: the impact of new distribution channels and low-cost airlines JAUME ROSSELLÓ AND ANTONI RIERA Centre de Recerca Económica, Departament d’Economia Aplicada, Edifici Jovellanos, Universitat de les Illes Balears, Carretera Valldemossa km 7.5, 07122 Palma de Mallorca, Spain. E-mail: jrossello@uib.es. (Corresponding author: Jaume Rosselló.) The recent expansion of low-cost carriers and the increasing use of the Internet are bringing about a major transformation in the marketing of summer tourism products in Europe. This paper investigates differences in price levels and price dispersion across offline and online markets and across tour operators and new emerging Internet retailers, using microdata for individual tourist expenditure on travel and accommodation in the Balearic Islands, Spain. The results of the hedonic regression model suggest that the prices of transport, accommodation and board offered on the Internet are lower than those offered through other channels, whatever the quality and quantity. Keywords: Internet pricing; e-tail; hybrid retailers; intermediaries; tourism products; Mediterranean Sea The emergence and exponential growth of the Internet have had a significant effect on mass tourism markets. Real-time Internet searches for information about destinations, prices and the availability of transport and accommodation and the online reservation of all kinds of tourism services are a reality today for a significant number of consumers who have become tourism market e-consumers (Garín and Amaral, 2011). According to conventional thinking on Internet competition, the Internet’s unique characteristics will bring about a nearly perfect market where a retailer’s location is irrelevant, consumers are fully informed of the prices and products on offer and all retailers make zero economic profit (Smith and Brynjolfsson, 2001). As a result, the Internet should reduce search costs for consumers and thereby reduce prices, especially when Internet markets are mature (Bock et al, 2007) and price dispersion tends to converge to an optimal level (Walter et al, 2006). Nowadays, with more than half of the tourists to certain coastal destinations buying some tourism service online, Mediterranean summer tourist markets can be considered mature Internet markets. However, the effect of the Internet on mass tourism markets could be more