IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

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

Author Info

  • Itai Ater

    ()

    (Recanati Business School, Tel Aviv University)

  • Eugene Orlov

    ()

    (Compass Lexecon)

Registered author(s):

    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.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.netinst.org/Ater_Orlov_13-07.pdf
    Download Restriction: no

    Paper provided by NET Institute in its series Working Papers with number 13-07.

    as
    in new window

    Length: 32 pages
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:net:wpaper:1307
    Contact details of provider: Web page: http://www.NETinst.org/

    Keywords: Internet; Search; Air Travel; Quality;

    Find related papers by JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    This paper has been announced in the following NEP Reports:

    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.:

    as in new window
    1. Nick Bloom & Raffaella Sadun & John Van Reenen, 2007. "Americans do I.T. better: US multinationals and the productivity miracle," LSE Research Online Documents on Economics 4555, London School of Economics and Political Science, LSE Library.
    2. Eugene Orlov, 2011. "How Does The Internet Influence Price Dispersion? Evidence From The Airline Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 21-37, 03.
    3. Austan Goolsbee & Chad Syverson, 2004. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," Working Papers 04-04, NET Institute, revised Dec 2004.
    4. Christopher Mayer & Todd Sinai, 2003. "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why Not All Delays Are Evil," American Economic Review, American Economic Association, vol. 93(4), pages 1194-1215, September.
    5. Nevo, Aviv, 1999. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Competition Policy Center, Working Paper Series qt7cm5p858, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    6. Steven Berry & Panle Jia, 2008. "Tracing the Woes: An Empirical Analysis of the Airline Industry," NBER Working Papers 14503, National Bureau of Economic Research, Inc.
    7. Thomas N. Hubbard, 2003. "Information, Decisions, and Productivity: On-Board Computers and Capacity Utilization in Trucking," American Economic Review, American Economic Association, vol. 93(4), pages 1328-1353, September.
    8. Borenstein, S., 1991. "The Evolution of U.S. Airline Competition," Papers 389, California Davis - Institute of Governmental Affairs.
    9. Michael Mazzeo, 2003. "Competition and Service Quality in the U.S. Airline Industry," Review of Industrial Organization, Springer, vol. 22(4), pages 275-296, June.
    10. Arthur Fishman & Nadav Levy, 2011. "Search Costs and Risky Investment in Quality," Working Papers 2011-04, Bar-Ilan University, Department of Economics.
    11. Maria Arbatskaya, 2007. "Ordered search," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 119-126, 03.
    12. William P. Rogerson, 1988. "Price Advertising and the Deterioration of Product Quality," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 215-229.
    13. Yuval Salant, 2011. "Procedural Analysis of Choice Rules with Applications to Bounded Rationality," American Economic Review, American Economic Association, vol. 101(2), pages 724-48, April.
    14. David Dranove & Mark A. Satterthwaite, 1992. "Monopolistic Competition When Price and Quality are Imperfectly Observable," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 518-534, Winter.
    15. Kristopher S. Gerardi & Adam Hale Shapiro, 2009. "Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 1-37, 02.
    16. Silke J. Forbes & Mara Lederman, 2010. "Does vertical integration affect firm performance? Evidence from the airline industry," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 765-790.
    17. David A. Matsa, 2011. "Competition and Product Quality in the Supermarket Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1539-1591.
    Full references (including those not matched with items on IDEAS)

    The CitEc project has not yet found citations to this item.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Access and download statistics

    When requesting a correction, please mention this item's handle: RePEc:net:wpaper:1307. 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: (Nicholas Economides)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.