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

Itai Ater () and Eugene Orlov ()
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Itai Ater: Recanati Business School, Tel Aviv University
Eugene Orlov: Compass Lexecon

No 13-07, Working Papers from NET Institute

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.

Keywords: Internet; Search; Air Travel; Quality (search for similar items in EconPapers)
JEL-codes: D83 L15 L93 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-09
New Economics Papers: this item is included in nep-com, nep-ict, nep-tre, nep-tur and nep-ure
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