APPROPRIABILITY AND THE INDIRECT VALUE OF CRS OWNERSHIP IN THE AIRLINE INDUSTRY

Abstract

It is difficult for the firm investing in information technology (IT) to appropriate a1 of 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 in order to appropriate the returns from their investments in information technology. The airlines expected to obtain a number of benefits from this strategy including increased efficiency, possible bias in favor of the CRS owner on the part of the travel agent, and fees from other airlines for making reservations for them. The purpose of this paper is to evaluate the impact of the indirect (non-fee) benefits to CRS owners from deploying systems in travel agencies. These indirect benefits should be seen in the vendor airline's market share between cities and in the overall performance of the airline at an industry level. This paper models airline performance as a function of CRS ownership at two levels: for selected city-pairs and at the overall level of the firm. The city-pair analysis employs a multinomial logit market share model using five years of data on 72 routes. The industry model uses longitudinal data for a panel of ten airlines for twelve years. The results of both analyses support hypotheses that CRS ownership is positively related to airline performance, It appears that strong airlines have appropriated the indirect benefits of their CRSs, turning them into highly specialized assets for further travel-related innovation.