This study analyzes the impact of all-inclusive offerings on a destination’s competitiveness. When the rise in all-inclusive offerings causes a negative externality on complementary services, it creates a market-size effect. This results in an excessive supply of all-inclusive offerings in the market. Imposing different taxes on all-inclusive and non-all-inclusive offerings is more effective than a cap on the supply of all-inclusive offerings. Taxes can implement the optimal allocation. We expect the market-size effect to be harmful to competitiveness in mature destinations.