Airline firm boundary and ticket distribution in electronic markets
The electronic markets hypothesis (EMH) predicts that the intense intrusion of information technology (IT) into the market system has a strong influence on the degree of market coordination. As transaction costs go down due to inexpensive IT-enabled exchange of information, market-based economic activities increase. Contrary to the predictions of the EMH, US legacy airlines have increasingly relied on hierarchical governance and oppose market-based economic activities. Using US legacy airline distribution strategies as an example, this paper demonstrates that even dominant players in an oligopolistic industry, operating during the explosive evolution of electronic markets, are subject to the predictions set by the EMH. Predictions of the EMH are tested by analyzing 17 years of operational data, using the DEA (data envelopment analysis) method. Tobit regression is executed in tandem with DEA to test the hypothesis that various strategies deployed by the legacy airlines have a strong impact on operational performance. Despite the perceived market power possessed by the strongest players, and the apparent inverse relationship between IT-driven distribution and production within hierarchies, the end results reveal that legacy airline business strategies, such as disintermediation to exclude downstream players or vertical integration to compete with rivals, have created a negative impact on the business performance of airlines. Operational efficiency has not improved.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daniel A. Ackerberg & Maristella Botticini, 2002.
"Endogenous Matching and the Empirical Determinants of Contract Form,"
Journal of Political Economy,
University of Chicago Press, vol. 110(3), pages 564-591, June.
- Daniel A. Ackerberg & Maristella Botticini, 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Papers 0096, Boston University - Industry Studies Programme.
- Ackerberg, D.A. & Botticini, M., 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Papers 96, Boston University - Department of Economics.
- Daniel A. Ackerberg & Maristella Botticini, 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Boston University - Institute for Economic Development 92, Boston University, Institute for Economic Development.
- George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
- Fama, Eugene F., 1996. "Multifactor Portfolio Efficiency and Multifactor Asset Pricing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(04), pages 441-465, December.
- Rauf Gönenç & Giuseppe Nicoletti, 2000.
"Regulation, Market Structure and Performance in Air Passenger Transportation,"
OECD Economics Department Working Papers
254, OECD Publishing.
- Rauf Gönenç & Giuseppe Nicoletti, 2001. "Regulation, market structure and performance in air passenger transportation," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 183-227.
- Michael A. Lapré & Nikos Tsikriktsis, 2006. "Organizational Learning Curves for Customer Dissatisfaction: Heterogeneity Across Airlines," Management Science, INFORMS, vol. 52(3), pages 352-366, March.
- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometric Society, vol. 50(6), pages 1345-70, November.
- Finn E. Kydland & Edward C. Prescott, 1982. "Web interface for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4a, Quantitative Macroeconomics & Real Business Cycles.
- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4, Quantitative Macroeconomics & Real Business Cycles.
- Oliver E. Williamson, 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 171-195, Summer.
- Oum, Tae Hoon & Fu, Xiaowen & Yu, Chunyan, 2005. "New evidences on airline efficiency and yields: a comparative analysis of major North American air carriers and its implications," Transport Policy, Elsevier, vol. 12(2), pages 153-164, March.
- Thomas N. Hubbard, 2008. "Viewpoint: Empirical research on firms' boundaries," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 341-359, May.
- Jerry Hausman, 2001. "Mismeasured Variables in Econometric Analysis: Problems from the Right and Problems from the Left," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 57-67, Fall.
- Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
- Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
- Nikos Tsikriktsis, 2007. "The Effect of Operational Performance and Focus on Profitability: A Longitudinal Study of the U.S. Airline Industry," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 506-517, April.
- John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
- Cheng, Kuangnen, 2010. "Evaluation of US legacy airline distribution strategies," Journal of Air Transport Management, Elsevier, vol. 16(6), pages 337-339.
- Noam, Eli M., 2006. "Fundamental instability: Why telecom is becoming a cyclical and oligopolistic industry," Information Economics and Policy, Elsevier, vol. 18(3), pages 272-284, September.
When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:137:y:2012:i:1:p:137-144. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.