Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry

The Internet has brought consumers increased access to information to make purchase decisions. One of the expected consequences is an increase in the price elasticity of demand, or the percent change in demand caused by a percent change in price, because consumers are better able to compare offering...

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Main Authors: GRANADOS, N. F., GUPTA, A., Kauffman, Robert J.
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Language:English
Published: Institutional Knowledge at Singapore Management University 2012
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Online Access:https://ink.library.smu.edu.sg/sis_research/2184
http://dx.doi.org/10.1287/isre.1100.0312
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spelling sg-smu-ink.sis_research-31842014-04-02T10:22:16Z Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry GRANADOS, N. F. GUPTA, A. Kauffman, Robert J. The Internet has brought consumers increased access to information to make purchase decisions. One of the expected consequences is an increase in the price elasticity of demand, or the percent change in demand caused by a percent change in price, because consumers are better able to compare offerings from multiple suppliers. In this paper, we analyze the impact of the Internet on demand, by comparing the demand functions in the Internet and traditional air travel channels. We use a data set that contains information for millions of records of airline ticket sales in both online and offline channels. The results suggest that consumer demand in the Internet channel is more price elastic for both transparent and opaque online travel agencies (OTAs), in part, because of more leisure travelers self-selecting the online channel, relative to business travelers. Yet, after controlling for this channel self-selection effect, we still find differences in price elasticity across channels. We find that the opaque OTAs are more price elastic than the transparent OTAs, which suggests that product information can mitigate the price pressures that arise from Internet-enabled price comparisons. We discuss the broader implications for multichannel pricing strategy and for the transparency-based design of online selling mechanisms. 2012-01-01T08:00:00Z text https://ink.library.smu.edu.sg/sis_research/2184 info:doi/10.1287/isre.1100.0312 http://dx.doi.org/10.1287/isre.1100.0312 Research Collection School Of Computing and Information Systems eng Institutional Knowledge at Singapore Management University Computer Sciences E-Commerce
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Computer Sciences
E-Commerce
spellingShingle Computer Sciences
E-Commerce
GRANADOS, N. F.
GUPTA, A.
Kauffman, Robert J.
Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry
description The Internet has brought consumers increased access to information to make purchase decisions. One of the expected consequences is an increase in the price elasticity of demand, or the percent change in demand caused by a percent change in price, because consumers are better able to compare offerings from multiple suppliers. In this paper, we analyze the impact of the Internet on demand, by comparing the demand functions in the Internet and traditional air travel channels. We use a data set that contains information for millions of records of airline ticket sales in both online and offline channels. The results suggest that consumer demand in the Internet channel is more price elastic for both transparent and opaque online travel agencies (OTAs), in part, because of more leisure travelers self-selecting the online channel, relative to business travelers. Yet, after controlling for this channel self-selection effect, we still find differences in price elasticity across channels. We find that the opaque OTAs are more price elastic than the transparent OTAs, which suggests that product information can mitigate the price pressures that arise from Internet-enabled price comparisons. We discuss the broader implications for multichannel pricing strategy and for the transparency-based design of online selling mechanisms.
format text
author GRANADOS, N. F.
GUPTA, A.
Kauffman, Robert J.
author_facet GRANADOS, N. F.
GUPTA, A.
Kauffman, Robert J.
author_sort GRANADOS, N. F.
title Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry
title_short Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry
title_full Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry
title_fullStr Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry
title_full_unstemmed Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry
title_sort online and offline demand and price elasticities: evidence from the air travel industry
publisher Institutional Knowledge at Singapore Management University
publishDate 2012
url https://ink.library.smu.edu.sg/sis_research/2184
http://dx.doi.org/10.1287/isre.1100.0312
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