Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

4-2002

Publication Source

Management Science

Volume

48

Issue

4

Start Page

534

Last Page

549

DOI

10.1287/mnsc.48.4.534

Abstract

Previous research has examined whether price dispersion exists in theoretically highly efficient Internet markets. However, much of the previous work has been focused on industries with low cost and undifferentiated products. In this paper, we examine the presence of price dispersion and product differentiation using data on the airline ticket offerings of online travel agents (OTAs). We find that different OTAs offer tickets with substantially different prices and characteristics when given the same customer request. Some of this variation appears to be due to product differentiation—different OTAs specialize by systematically offering different trade-offs between ticket price and ticket quality (minimizing the number of connections, matching requested departure and return time). However, even after accounting for differences in ticket quality, ticket prices vary by as much as 18% across OTAs. In addition, OTAs return tickets that are strictly inferior to the ticket offered by another OTA for the same request between 2.2% and 28% of the time. Overall, this suggests the presence of both price dispersion and product differentiation in the online travel market.

Keywords

electronic markets, price dispersion, product differentiation

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Date Posted: 27 November 2017

This document has been peer reviewed.