nep-tur New Economics Papers
on Tourism Economics
Issue of 2013‒10‒05
two papers chosen by
Laura Vici
Universita' di Bologna

  1. Value of a Platform to a Seller: Case of American Airlines and Online Travel Agencies By Volodymyr Bilotkach; Nicholas G. Rupp; Vivek Pai
  2. The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry By Itai Ater; Eugene Orlov;

  1. By: Volodymyr Bilotkach (Newcastle University, Department of Economics); Nicholas G. Rupp (East Carolina University, Department of Economics); Vivek Pai (University of California, Irvine, and KBB Department of Economics)
    Abstract: We approach the issue of the value of a platform to a seller in a two-sided market where both buyers and sellers multi-home. A seller that loses access to a major buyer platform can potentially incur substantial financial losses. We exploit a recent conflict between American Airlines and two leading online travel agencies (Expedia and Orbitz), which dropped American Airlines fare quotes during the first quarter of 2011. We present a simple model of airline ticket distribution. This model provides a framework to analyze the events that happened in the American Airlines – online travel agency conflict. We analyze price data for the first quarter of 2010 and 2011, employing a simple difference-in-differences identification strategy to evaluate changes in American Airlines’ fares. After controlling for across-market heterogeneity, carrier-specific time-invariant effects, and time-specific carrier-invariant effects, American Airlines’ fares during the conflict were 2.7-4.2 percent lower than similar fares charged by American’s main competitors (United, Continental, Delta, and US Airways). The fare effect is most pronounced in the sub-sample of one-stop itineraries, where competition is stronger, and customers are more likely to have to rely on travel agents – rather than carriers’ own web-sites – for flight bookings. In sum, our findings indicate that access to major buyer platforms is considerably valuable to a seller. We estimate that during the first quarter of 2011 the loss of access to the Expedia/Orbitz platforms resulted in over $50 million reduction in revenue for American Airlines.
    Keywords: two-sided markets, value of platforms, online travel agents Length: 31 pages
    JEL: D4 L4 L93
    Date: 2013–09
  2. By: Itai Ater (Recanati Business School, Tel Aviv University); Eugene Orlov (Compass Lexecon);
    Abstract: How did the diffusion of the Internet affect performance and product quality in the airline industry? We argue that the shift to online distribution channels has changed the way airlines compete for customers - from an environment in which airlines compete for space at the top of travel agents’ computer screens by scheduling the shortest flights, to an environment where price plays the dominant role in selling tickets. Using flight-level data between 1997 and 2007 and geographical growth patterns in Internet access, we find a positive relationship between Internet access and scheduled flight times. The magnitude of the effect is larger in competitive markets without low-cost carriers and for flights with shortest scheduled times. We also find that despite longer scheduled flight times, flight delays increased as passengers gained Internet access. More generally, these findings suggest that increased Internet access may adversely affect firms' performance and firms’ incentives to provide high quality products.
    Keywords: Internet, Search, Air Travel, Quality
    JEL: D83 L15 L93
    Date: 2013–09

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