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

34 Pages Posted: 7 Oct 2013

See all articles by Itai Ater

Itai Ater

Tel Aviv University - The Leon Recanati Graduate School of Business Administration

Eugene Orlov

Securities and Exchange Commission

Date Written: September 15, 2013

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

JEL Classification: D83, L15, L93

Suggested Citation

Ater, Itai and Orlov, Eugene, The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry (September 15, 2013). NET Institute Working Paper No. 13-07, Available at SSRN: https://ssrn.com/abstract=2335706 or http://dx.doi.org/10.2139/ssrn.2335706

Itai Ater (Contact Author)

Tel Aviv University - The Leon Recanati Graduate School of Business Administration ( email )

P.O. Box 39010
Ramat Aviv Tel Aviv 69972, 69978
Israel

Eugene Orlov

Securities and Exchange Commission ( email )

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