Buyer Subsidies in Two-Sided Markets: Evidence from Online Travel Agents

39 Pages Posted: 23 Apr 2012

See all articles by Volodymyr Bilotkach

Volodymyr Bilotkach

Newcastle Business School

Nicholas G. Rupp

East Carolina University - Department of Economics

Date Written: April 23, 2012

Abstract

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

Bilotkach, Volodymyr and Rupp, Nicholas G., Buyer Subsidies in Two-Sided Markets: Evidence from Online Travel Agents (April 23, 2012). Available at SSRN: https://ssrn.com/abstract=2045075 or http://dx.doi.org/10.2139/ssrn.2045075

Volodymyr Bilotkach

Newcastle Business School ( email )

208, City Campus East-1
Newcastle upon-Tyne, NE1 8ST
United Kingdom

Nicholas G. Rupp (Contact Author)

East Carolina University - Department of Economics ( email )

Brewster Building
Greenville, NC 27858
United States
252.328.6821 (Phone)
252.328.6743 (Fax)

HOME PAGE: http://myweb.ecu.edu/ruppn/

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