Appropriating value from computerized reservation system ownership in the airline industry

It is difficult for the firm competing through information technology resou rces to gain a sustainable advantage because systems are easy to imitate an d substitute resources are often available to competitors. The innovator ma y be unable to appropriate all of the benefits from information technology investments. Airlines have installed computerized reservations systems in t ravel agencies to appropriate the returns from their investments in informa tion technology. The airlines expected to obtain a number of benefits from this strategy, including increased efficiency, possible bias in favor of th e computerized reservations systems 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 appropriation of value by computerized res ervations systems owners from deploying systems in travel agencies. These b enefits, beyond fees from travel agents, should be seen in the vendor airli ne's market share between cities and in the overall performance of the airl ine at an industry level. This paper models airline performance as a functi on of computerized reservations systems ownership at two levels: for select ed city-pairs and at the overall level of the firm. The city-pair analysis employs a multinomial logit market share model that analyzes five years of data on 72 city-pair routes. The industry model uses longitudinal data for a panel of 10 airlines for 12 years. The results of both analyses support h ypotheses that computerized reservations systems ownership is positively re lated to airline performance. It appears that strong airlines have appropri ated the benefits of their computerized reservations systems, turning them into highly specialized assets for further travel-related innovation. This work offers useful theoretical extensions and methodological approaches for the study of similar kinds of network technology innovations that are curr ently being deployed in association with electronic commerce on the Interne t.