The tragedy of commons is a situation where a common resource has many users whose property rights are not precisely defined. Each user benefits from taking more of the resource, but all other users lose if one takes more. At the equilibrium level of resource use, if one user takes more, then the combined loss of the other users exceeds the gain of the one user.

The trust of tourists is like a common resource for the tourism businesses in one area. Each firm can use aggressive business practices that yield higher immediate profits, but leave tourists with a bad experience. This erodes the goodwill of tourists towards all firms in the area, so all other firms suffer because one firm cheats tourists. The cheating firm’s future profits will also be lower, but usually not by enough to deter cheating at present.

It may be an equilibrium for all firms to get as much immediate profit as they can and for tourists not to trust any firm in that area. The sum of the firms’ profits is then probably lower than in the case where they all follow good practices and the tourists trust them.

If the firms agree to use good practices and this agreement is enforceable, for example via a trade association, everyone might win. The tourists get better quality, better value for money, and the firms get higher profits. On the other hand, if the firms can agree on one thing, they can agree on another, for example a cartel. This will further increase firm profits, but will lower value for money of tourists. The overall effect of an agreement among firms on the benefit tourists get is uncertain.