The nature of competition in electronic distribution of air travel

Il-Horn Hann, University of Pennsylvania

Abstract

This dissertation analyzes specific issues in the distribution of air travel. In three separate chapters, I analyze (1) the nature competition among online travel agents, (2) travel agent commission overrides as an explanation of dispersion in quoted ticket prices and (3) the response of a traditional travel agent to the introduction of commission caps and cuts by airlines. The appearance of online retailers has given researchers the opportunity to compare the retailers' offerings on the web and to characterize the way in which online retailers compete. The second chapter assesses the nature of competition among online travel agents in an empirical study, specifically, it examines the role of product differentiation and price competition. The results indicate that product differentiation is still an important dimension in the competition among online travel agents. In the context of online travel agents, segmentation of customers through product differentiation appears to be the profit maximizing strategy. Further, we show that competition among online travel agent is not consistent with complete market transparency and pure price competition. Further, an analysis of the offerings may also reveal previously hidden information about the relationship of the retailer to certain producers. The third chapter focuses on one potential explanation of the observed price dispersion for quoted ticket prices, namely hidden incentives from airlines or so called travel agent commission overrides. We find that the difference in prices of OTA recommendations can be partly explained by the difference in market share of the recommended airlines. Further, the difference in market share results in a greater price difference for the time-priority data set than for the price-priority data set. Last, brick-and mortar travel agents had to cope with a drastic change in the compensation structure. Travel agents faced pressure from two sides: drastically reduced commissions from airlines as well as the practice to rebate commissions to their clients. The last chapter discusses how a traditional travel agent, Rosenbluth International, replied to changes in the compensation structure and how it managed the transition.

Subject Area

Marketing|Business costs|Transportation

Recommended Citation

Hann, Il-Horn, "The nature of competition in electronic distribution of air travel" (2000). Dissertations available from ProQuest. AAI9976432.
https://repository.upenn.edu/dissertations/AAI9976432

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