Buyer Subsidies in Two-Sided Markets: Evidence from Online Travel Agents
39 Pages Posted: 23 Apr 2012
Date Written: April 23, 2012
Platforms in two-sided markets are known to provide subsidies to either buyers or sellers, in order to take advantage of cross-group externalities inherent in such industries. Online travel agents can be thought of as platforms facilitating trade between passengers and travel service providers (airlines). This paper evaluates the effects of a buyer subsidy provided by one major online travel agent – a low-price guarantee offered by Orbitz. We find evidence consistent with increased airline participation with this travel agent upon implementation of the low-price guarantee policy. Our results confirm the theoretical claims that most-favored customer low price guarantee policies are pro-competitive.
Keywords: Two-sided markets, price-matching, price guarantees, most favored customer, meet-or-release
JEL Classification: D4, L4, L93
Suggested Citation: Suggested Citation