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Internet Penetration and Capacity Utilization in the US Airline Industry

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Listed:
  • James D. Dana Jr.
  • Eugene Orlov Jr.

Abstract

Airline capacity utilization increased dramatically between 1993 and 2007, after staying fairly level following deregulation. We argue that consumers' use of the Internet to investigate and purchase airline tickets reduces market frictions and allows airlines to meet demand with less capacity and higher load factors. We find that differences in the rate of change of metropolitan area Internet penetration are positively correlated with differences in the rate of change of airlines' airport-pair load factors. Consistent with our explanation, this correlation is greater on flights in more competitive markets and on flights with fewer total passengers.

Suggested Citation

  • James D. Dana Jr. & Eugene Orlov Jr., 2014. "Internet Penetration and Capacity Utilization in the US Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 6(4), pages 106-137, November.
    • Handle: RePEc:aea:aejmic:v:6:y:2014:i:4:p:106-37
    Note: DOI: 10.1257/mic.6.4.106
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    6. Coad, Alexander & Domnick, Clemens & Flachenecker, Florian & Harasztosi, Peter & Janiri, Mario Lorenzo & Pál, Rozália & Teruel Carrizosa, Mercedes, 2021. "Do capacity constraints trigger high growth for enterprises?," EIB Working Papers 2021/08, European Investment Bank (EIB).
    7. Itai Ater & Eugene Orlov, 2013. "The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry," Working Papers 13-07, NET Institute.
    8. Goel, Rajeev K. & Nelson, Michael A., 2021. "Capacity utilization in emerging economy firms: Some new insights related to the role of infrastructure and institutions," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 97-106.
    9. Diego Escobari & Jim Lee, 2014. "Demand uncertainty and capacity utilization in airlines," Empirical Economics, Springer, vol. 47(1), pages 1-19, August.
    10. Alex Coad & Clemens Domnick & Florian Flachenecker & Peter Harasztosi & Mario Lorenzo Janiri & Rozalia Pal & Mercedes Teruel, 2022. "Capacity constraints as a trigger for high growth," Small Business Economics, Springer, vol. 59(3), pages 893-923, October.
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    12. Matthew Calver & Fanny McKellips, 2016. "Productivity Trends in the Canadian Transport Sector: An Overview," CSLS Research Reports 2016-04, Centre for the Study of Living Standards.
    13. Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
    14. Shih-Hsien Chuang, 2020. "Cost pass-through in the airline industry: price responses and asymmetries," Economics Bulletin, AccessEcon, vol. 40(1), pages 639-652.
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    17. Yamaguchi, Rintaro, 2020. "Available capital, utilized capital, and shadow prices in inclusive wealth accounting," Ecological Economics, Elsevier, vol. 169(C).
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    20. Marit Hinnosaar & Toomas Hinnosaar & Michael Kummer & Olga Slivko, 2017. "Wikipedia Matters," Carlo Alberto Notebooks 508, Collegio Carlo Alberto.

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management

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