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Value of a Platform to a Seller: Case of American Airlines and Online Travel Agencies

Author

Listed:
  • Volodymyr Bilotkach

    () (Newcastle University, Department of Economics)

  • Nicholas G. Rupp

    () (East Carolina University, Department of Economics)

  • Vivek Pai

    () (University of California, Irvine, and KBB Department of Economics)

Abstract

We approach the issue of the value of a platform to a seller in a two-sided market where both buyers and sellers multi-home. A seller that loses access to a major buyer platform can potentially incur substantial financial losses. We exploit a recent conflict between American Airlines and two leading online travel agencies (Expedia and Orbitz), which dropped American Airlines fare quotes during the first quarter of 2011. We present a simple model of airline ticket distribution. This model provides a framework to analyze the events that happened in the American Airlines – online travel agency conflict. We analyze price data for the first quarter of 2010 and 2011, employing a simple difference-in-differences identification strategy to evaluate changes in American Airlines’ fares. After controlling for across-market heterogeneity, carrier-specific time-invariant effects, and time-specific carrier-invariant effects, American Airlines’ fares during the conflict were 2.7-4.2 percent lower than similar fares charged by American’s main competitors (United, Continental, Delta, and US Airways). The fare effect is most pronounced in the sub-sample of one-stop itineraries, where competition is stronger, and customers are more likely to have to rely on travel agents – rather than carriers’ own web-sites – for flight bookings. In sum, our findings indicate that access to major buyer platforms is considerably valuable to a seller. We estimate that during the first quarter of 2011 the loss of access to the Expedia/Orbitz platforms resulted in over $50 million reduction in revenue for American Airlines.

Suggested Citation

  • Volodymyr Bilotkach & Nicholas G. Rupp & Vivek Pai, 2013. "Value of a Platform to a Seller: Case of American Airlines and Online Travel Agencies," Working Papers 13-08, NET Institute.
  • Handle: RePEc:net:wpaper:1308
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    References listed on IDEAS

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    1. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
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    Cited by:

    1. Varella, Rafael R. & Frazão, Jessica & Oliveira, Alessandro V.M., 2017. "Dynamic pricing and market segmentation responses to low-cost carrier entry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 98(C), pages 151-170.

    More about this item

    Keywords

    two-sided markets; value of platforms; online travel agents Length: 31 pages;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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