This may be a bit long winded, sorry about that.
First, the way the tournaments are structured, you're able to lose once and be tossed into the "loser" bracket with another and battle to stay in. If you lose again, even after winning the loser battle, you forfeit the tournament. The key for the player is to manage when to take a loss when to reset, or when to forfeit altogether.
Basically the way it is structured depends on the rank. So when you go into the tournament, you start out at the lowest rank and as you level up your team that rank will change and increase difficulty. There's no going backwards once your rank increases, and for the sake of story you're more or less locked into ranks as you go.
For the lower two ranks, you'll complete a battle, and in between will be stuck in an area where you can heal and switch out Pokemon, but not purchase items. You won't be able to leave the building, however, but can forfeit manually or by losing twice if you feel the need but this will mean you lose that tournament. The good thing about this is that you don't need to win every single tournament, as they're isolated events. However, losing too many will lock you out of future gameplay events and you may find yourself having to rebattle a lot of trainers to keep up with the game's pace.
For the top two, you'll be able to roam out of the building, purchase items, etc. in between, if only because the difficulty will mean having to reformulate teams and I wouldn't want you to have to forfeit just because you lack the team you need to beat a certain person. It also makes sense story wise as these trainers are usually the best of the best and their battles will be a lot more special. I wanted to make it so you were unable to heal, like with the E4, but I decided to instead but the challenge in the individual team's strength and not managing items.
Now, I've come to realize that forfeiting as a mechanic may cause an imbalance in difficulty, which is why I think the more open approach to the game is needed. You can go back and rebattle some trainers after certain points, will be able to battle during sidequests, etc. Imposing a level cap will also prevent too much leveling up, but it's not quite as merciless as with other games.
The logistics of balancing the game aren't sorted out completely regardless, until we go into beta testing. Just playing the game through on my own it seems there are some adjustments that will be made, but I think the tournament mechanics will work well for now. The forfeit mechanic may be a bit tricky for now, but perhaps I will just make it so the option does not exist. For now this is just a theory that I can work out through trial and error.