Towards a Theory of the Move to Unbiased Electronic Markets: Lessons from the Air Travel Industry

The electronic market hypothesis (EMH) in the Information Systems (IS) literature predicts that by reducing coordination costs, information technology (IT) will shift industrial organization from hierarchical to market-based forms of economic activity. While academic researchers and practitioners have witnessed these shifts with the advent of the Internet, there is little understanding about the process and the underlying forces that drive them. In this article, we explore the move of the air travel industry to unbiased electronic markets. We complement the EMH with market design theory to show how this transformation has been occurring. We argue that the presence of advanced ITs is not enough to explain the move from hierarchies to unbiased markets in the air travel industry. Other forces have also facilitated this move, such as the information-intensive nature of air travel products and pro-competition policies. Based on this analysis of the transformation of the air travel industry, we generalize our theoretical framework so that it can be applied in other settings and make a call for in-depth research on real world, technology-enabled moves to advanced forms of market-based organization.