Value of a Platform to a Seller: Case of American Airlines and Online Travel Agencies
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.
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.:
- 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.
- Kaiser, Ulrich & Wright, Julian, 2004. "Price Structure in Two-sided Markets: Evidence from the Magazine Industry?," ZEW Discussion Papers 04-80, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Elena Argentesi & Lapo Filistrucchi, 2007. "Estimating market power in a two-sided market: The case of newspapers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1247-1266.
- Elena Argentesi & Lapo Filistrucchi, 2005. "Estimating market power in a two-sided market: the case of newspapers," Economics Working Papers ECO2005/07, European University Institute.
- Bilotkach, Volodymyr, 2010. "Reputation, search cost, and airfares," Journal of Air Transport Management, Elsevier, vol. 16(5), pages 251-257.
- Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
- Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform competition in two sided markets," LSE Research Online Documents on Economics 24929, London School of Economics and Political Science, LSE Library.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
- Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Jihui Chen, 2006. "Differences in Average Prices on the Internet: Evidence from the Online Market for Air Travel," Economic Inquiry, Western Economic Association International, vol. 44(4), pages 656-670, October.
- Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
- Diego Escobari & Li Gan, 2007. "Price Dispersion under Costly Capacity and Demand Uncertainty," NBER Working Papers 13075, National Bureau of Economic Research, Inc.
- Pauline Affeldt & Lapo Filistrucchi & Tobias J. Klein, 2013. "Upward Pricing Pressure in Two‐sided Markets," Economic Journal, Royal Economic Society, vol. 123(11), pages 505-523, November.
- Pauline Affeldt & Lapo Filistrucchi & Tobias J. Klein, 2012. "Upward Pricing Pressure in Two-Sided Markets," Working Papers - Economics wp2012_15.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
- Affeldt, P. & Filistrucchi, L. & Klein, T.J., 2012. "Upward Pricing Pressure in Two-Sided Markets," Discussion Paper 2012-069, Tilburg University, Center for Economic Research.
- Affeldt, P. & Filistrucchi, L. & Klein, T.J., 2012. "Upward Pricing Pressure in Two-Sided Markets," Discussion Paper 2012-029, Tilburg University, Tilburg Law and Economic Center.
- Ambarish Chandra & Allan Collard-Wexler, 2009. "Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1045-1070, December.
- Chandra, Ambarish & Collard-Wexler, Allan, 2008. "Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry," MPRA Paper 7954, University Library of Munich, Germany.
- Eric K. Clemons & Il-Horn Hann & Lorin M. Hitt, 2002. "Price Dispersion and Differentiation in Online Travel: An Empirical Investigation," Management Science, INFORMS, vol. 48(4), pages 534-549, April.
- Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
- repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:net:wpaper:1308. 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 references are entirely missing, you can add them using this form.