Appropriability and the Indirect Value of Crs Ownership in the Airline Industry
43 Pages Posted: 15 Oct 2008
Date Written: November 1996
It is difficult for the firm investing in information technology (IT) to appropriate a1of the benefits from its investment for itself- it is very easy to imitate innovations in IT.Airlines have installed computerized reservations systems (CRSs) in travel agencies inorder to appropriate the returns from their investments in information technology. Theairlines expected to obtain a number of benefits from this strategy including increasedefficiency, possible bias in favor of the CRS owner on the part of the travel agent, andfees from other airlines for making reservations for them. The purpose of this paper isto evaluate the impact of the indirect (non-fee) benefits to CRS owners from deployingsystems in travel agencies. These indirect benefits should be seen in the vendorairline's market share between cities and in the overall performance of the airline at anindustry level. This paper models airline performance as a function of CRS ownershipat two levels: for selected city-pairs and at the overall level of the firm. The city-pairanalysis employs a multinomial logit market share model using five years of data on 72routes. The industry model uses longitudinal data for a panel of ten airlines for twelveyears. The results of both analyses support hypotheses that CRS ownership ispositively related to airline performance, It appears that strong airlines haveappropriated the indirect benefits of their CRSs, turning them into highly specializedassets for further travel-related innovation.
Keywords: Appropriability, agency automation, airline performance, business value of IT, computerized reservation systems, CRS, corporate strategy, market share models
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