Orbitz, Online Travel Agents and Market Structure Changes in the Presence of Technology-driven Market Transparency

Air travel distribution has been transformed by Internet technology because of an increase in market transparency, the level of availability and accessibility of product and price information. This article attempts to explain and interpret changes in the market for online travel with the market entry of air carrier consortium-owned Orbitz, a second generation online travel agency (OTA) that significantly changed the competitive dynamics around market transparency. Our interpretation of the developments is based on market microstructure theory, and more recent work that relates market transparency to firm pricing strategies and consumer demand. Our interpretation is developed in three stages. First, we explore market transparency-related developments in first generation online travel since the mid-1990s in the United States. Second, we analyze Orbitz’s market transparency strategy and its impacts on the industry, leading to the emergence of new consumer expectations in the Internet channel. Third, we assess other related changes in the industry that have emerged that further suggest the broad impacts of Orbitz’s strategy, including recent changes in the highly pricesensitive leisure travel segment of the OTA market. Overall, our findings suggest that market transparency changes will continue to drive additional changes in the OTA sector.