Intermediary or no intermediary in the electronic markets: The case of the U.S. airlines distribution industry

Abstract

After 25 years into the airlines distribution industry's aggressive middleman bypass, the disruption generated by disintermediation must have reduced costs and increased efficiency as current unbiased information aggregators are proliferated and the number of retailing intermediary are at a historical low. The objective of this study is to understand whether industry disintermediation has served its purpose of reducing distribution reliance on intermediaries. This study applies Data Envelopment Analysis and Tobit Regression to analyze 28 years' operating data from 16 major airlines. Results reveal, contrary to all predictions, that relying on a retailing intermediary still produces a positive impact on the distribution efficiency. This conclusion is drawn from the following findings: 1) a shorter chain produces better efficiency; 2) the more market transparency, the worse efficiency; 3) the more retailing locations, the better efficiency and 4) the direct distribution, the retailing agency's total sales and the commission removal has no impact on the distribution efficiency. The study also attempts to explain why these findings support the conclusion that a retailing intermediary is still essential. Findings provide a guideline for airlines on how they should position themselves as a “governance structure” relying on middlemen instead of transforming into “firm as a production function” to bypass agents.

Keywords

• DEA
• Distribution channels
• Electronic markets
• Retailing intermediary
• Transaction costs theory