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

  • Itai Ater


    (Recanati Business School, Tel Aviv University)

  • Eugene Orlov


    (Compass Lexecon)

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    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.

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

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    Length: 32 pages
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:net:wpaper:1307
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