Price dispersion of online air tickets for short distance international routes

Abstract

The travel industry is currently experiencing a major transition as distribution channels change in response to developments in information technology. This study investigated whether online travel agents (OTAs) can offer air tickets with different prices given the lower search costs made possible by the Internet. This investigation first examined the hypothesis that price dispersion does not exist in air ticket offerings by OTAs. Hedonic regression models with log-linear form are then built to explain the pricing characteristics of air tickets. After accounting for differences in ticket attributes, ticket prices were found to vary by as much as 1.859% across OTAs. In other words, different OTAs were offering identical tickets at different prices. Statistically, significant interaction effects existed between airlines and OTAs, suggesting that travelers with specific airline preferences should expect to find different prices on different OTAs, even when ticket attributes are identical. This work thus revealed imperfections in the online air ticket market. It is therefore necessary for fare conscious air travelers to search different web services provided by OTAs to locate the best deal.

Keywords:

• online air tickets
• price dispersion
• hedonic regression model