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IT-enabled transparent electronic markets: the case of the air travel industry

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Abstract

The electronic market hypothesis predicts that by reducing coordination costs, information technology (IT) will shift industrial organization from hierarchical to market-based forms of economic activity. While academic researchers and practitioners have witnessed these shifts with the advent of the Internet, there is little understanding about the process and the underlying forces that drive them. In this paper, we provide an in-depth analysis of the air travel industry, which has recently experienced significant IT-driven transformations. We conclude that, together with IT, pro-competitive laws and the information-intensive nature of air travel products have triggered competition for consumers with transparent market mechanisms, which is leading to the emergence of more transparent electronic markets in the air travel industry.

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Acknowledgments

The authors would like to thank the anonymous reviewers and co-chairs of the 28th Hawaii International Conference on Systems Science in the B2B E-Commerce mini-track. We especially benefited from personal interactions and comments on the content of this work from Charles Steinfield, Fu-ren Lin, Lynne Markus, and Rolf Wigand. Rob Kauffman thanks Donna Sarppo and the MIS Research Center at the University of Minnesota for partial support. Nelson Granados acknowledges funding through a Graduate School Fellowship and thesis costs support from the University of Minnesota. Alok Gupta’s work is supported by National Science Foundation Grant #IIS-0092780, for which he kindly acknowledges funding. All errors of fact or interpretation are the sole responsibility of the authors.

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Authors and Affiliations

  1. Information and Decision Sciences Department, 3-365 Carlson School of Management, University of Minnesota, 321 19th Ave. South, Minneapolis, MN, 55455, USA

    Nelson F. Granados, Alok Gupta & Robert J. Kauffman

Authors
  1. Nelson F. Granados
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  2. Alok Gupta
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  3. Robert J. Kauffman
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Corresponding author

Correspondence to Nelson F. Granados.

Appendix: Illustration of OTA market mechanisms

Appendix: Illustration of OTA market mechanisms

To illustrate the level of transparency associated with different OTAs and how it has changed, we include several screen shots of travel search results for Travelocity, Hotwire, and Priceline.com, one prior to the change and one after the change for each firm.

  1. (A)

    Travelocity

  2. (B)

    Hotwire’s Three-Tier Transparency Strategy

    • Hotwire’s Original Opaque Mechanism

      figure c

      Source: www.hotwire.com, accessed in April 2004. In Hotwire’s original opaque mechanism, the airline name and itinerary are only shown after a purchase is made. Only a few travel options were provided.

    • Hotwire’s Semi-Opaque and Transparent Mechanisms

      figure d

      Source: www.hotwire.com, accessed in June 2005. In 2005, Hotwire added a semi-opaque mechanism, which provides a time frame for the itinerary but not an exact flight time nor the airline name. For offers with exact flight times and airline name, users have access to “retail fares.”

  3. (C)

    Priceline.com

    • Priceline.com’s Original “Name-Your-Own-Price” Mechanism

      figure e

      Source: www.priceline.com, accessed in April 2004.

    • Priceline.com’s Two-Tier Transparency Strategy: The Matrix Display

      figure f

      Source: www.priceline.com, accessed in June 2005. In addition to its opaque mechanism, Priceline.com now offers retail fares with a matrix display.

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Granados, N.F., Gupta, A. & Kauffman, R.J. IT-enabled transparent electronic markets: the case of the air travel industry. ISeB 5, 65–91 (2007). https://doi.org/10.1007/s10257-006-0038-5

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