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The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry

Author

Listed:
  • Itai Ater

    (Tel Aviv University)

  • Eugene Orlov

    (Compass Lexecon)

Abstract

We argue that the rise of online travel agencies changed the nature of competition in the airline industry—from competition on elapsed scheduled flight times to price competition. Using flight-level data between 1997 and 2007 and geographical Internet growth patterns, we find a positive relationship between Internet access and flight times. The magnitude of this relationship is larger in competitive markets without low-cost carriers and for flights with shortest scheduled times. We also find that flight delays increased as more passengers gained Internet access. These findings suggest that the Internet may adversely affect firms’ performance and incentives to provide high-quality products. © 2015 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Itai Ater & Eugene Orlov, 2015. "The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 180-194, March.
    • Handle: RePEc:tpr:restat:v:97:y:2015:i:1:p:180-194
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00442
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    Citations

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    Cited by:

    1. Shiyi Chen & Wanlin Liu & Hong Song, 2020. "Broadband Internet, Firm Performance, And Worker Welfare: Evidence And Mechanism," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1146-1166, July.
    2. Douglas C. Turner, 2022. "Access pricing regulation in the U.S. domestic aviation industry," Journal of Regulatory Economics, Springer, vol. 62(1), pages 24-46, December.
    3. Silke J. Forbes & Mara Lederman & Zhe Yuan, 2019. "Do Airlines Pad Their Schedules?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 61-82, February.
    4. Gnutzmann, Hinnerk & Śpiewanowski, Piotr, 2023. "Can consumer rights improve on-time performance? Evidence from European Air Passenger Rights," Transport Policy, Elsevier, vol. 136(C), pages 155-168.
    5. Xuan Teng, 2022. "Self-Preferencing, Quality Provision, and Welfare in Mobile Application Markets," CESifo Working Paper Series 10042, CESifo.
    6. C. Jennifer Tae & Min‐Seok Pang & Brad N. Greenwood, 2020. "When your problem becomes my problem: The impact of airline IT disruptions on on‐time performance of competing airlines," Strategic Management Journal, Wiley Blackwell, vol. 41(2), pages 246-266, February.
    7. Chiou, Lesley & Kafali, E. Nilay & Rysman, Marc, 2020. "Internet use, competition, and geographical rescoping in Yellow Pages advertising," Information Economics and Policy, Elsevier, vol. 52(C).
    8. Marit Hinnosaar & Toomas Hinnosaar & Michael Kummer & Olga Slivko, 2017. "Wikipedia Matters," Carlo Alberto Notebooks 508, Collegio Carlo Alberto.
    9. Chen, Yun-Hsuan & Lin, Jen-Jia, 2021. "Determinants of flight delays at East Asian airports from an airport, route and network perspective," Journal of Air Transport Management, Elsevier, vol. 94(C).
    10. Shen, Guobing & Shen, Binchao & Wu, Ruochen & Yuan, Zhengyu, 2023. "Internetization and the markups of export firms: Evidence from China," Economic Modelling, Elsevier, vol. 120(C).
    11. Mariana Nicolae & Mazhar Arıkan & Vinayak Deshpande & Mark Ferguson, 2017. "Do Bags Fly Free? An Empirical Analysis of the Operational Implications of Airline Baggage Fees," Management Science, INFORMS, vol. 63(10), pages 3187-3206, October.

    More about this item

    Keywords

    online travel agencies; airline industry; price competition; flight delays; internet; internet access;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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