August 13, 2003

The Information Age Means Fiercer Competition

The Information age means increasing returns to scale--write-once, run-everywhere. But it also means that it is easier to get... information. Which means that all of the hassle and ignorance factors that produced local monopoly power are bypassed. Which means fiercer competition and better deals for consumers: | Travel and tourism: ...The other revolutionary influence on the business is the internet. The web has become a vast clearing house for the travel industry's overcapacity: the more deals it offers, the more buyers it finds. Forrester, a research company, reckons that travel is now the largest e-business in the world, with American consumers this year spending more than $27 billion on travel online. PhoCusWright, an online travel consultant, reckons that 30% of all travel business will be booked online by 2005. Ken Chenault, boss of American Express, expects 20% of all corporate travel to be booked online this year, up from just 1% two years ago. Less and less do tourists wander passively into travel agents' offices and take whatever has been pre-packaged for them. They increasingly indulge in "dynamic packaging", surfing the net to combine their own low-cost airline tickets with hotels' special online offers. Some do it themselves; others ask an agent to do it for them...

Posted by DeLong at August 13, 2003 08:08 AM | TrackBack


What about the increasing effects of price discrimination that Andrew
Odlyzko talks about in "Privacy,
economics, and price discrimination on the Internet"? Surely the
gains for the well-informed and patient consumer are more than
counterbalanced by the increased ability of sellers to price
discriminate on a larger and more efficient basis than ever.

Posted by: Koranteng Ofosu-Amaah on August 13, 2003 09:34 AM

Price discrimination, yes, and also a decreased adverse selection effects faced by insurance companies that can combine many small pieces of consumer data to assess risks faced by individual insurance clients.

Posted by: Mats on August 13, 2003 11:35 AM

"Which means that all of the hassle and ignorance factors that produced"

Brad, have you INTERACTED with the travel industry (ie planes, cars and hotels) via internet in the last two years? The hassle is still just as much there, it's just been shuffled around. Now it consists of things like Travelocity claiming your package will cost $400 --- until you get to the stage of payment where you find that taxes, surcharges and other BS have ramped that cost to $550.
It consists of airline code-sharing which allows (ala Wintel) both airlines involved in the code-share to deny any responsibility for bookings that go wrong.
It allows ever stronger forms of stupidity---at one level we have airlines lowering prices to less crowded airports, say to John Wayne rather than LAX. But at a different level we have computer booking systems that do nothing to help out with this exercise by pointing out to you that these cheaper fares exist.

Now all of these problems are technically soluble.
Booking systems COULD allow one more flexibility in saying I want to go from somewhere around here to somewhere around there on a date around such and such. They COULD show the real price instead of some fake thing that's 40% less than you'll actually pay. They COULD (yes, this means you Priceline), if their reason for existence is to auction off empty remaining seats on flights leaving soon, allow for one-way flights.

But none of them do all of these. Instead we have a motley collection of loser sites, with the best that can be said is that some of which do one of the things above acceptably. And is this going to change? Why? I see nothing driving this sort of improvement. These sites have been around for a long time and they still suck.

I think the best we can hope for is Google Travel will come along as save us as some sort of benevolent gift of the gods.

Posted by: Maynard Handley on August 13, 2003 12:18 PM

Amen brother! The perfect travel site has yet to be devised. I tend to use Travelocity to get a bird's eye view of flight options between two centers and then book the ticket on the airline's own site to avoid Travelocity's extra fee. What really gets me is when a third-party site offers a particular itinerary but the same combination of flights cannot be booked on the airline's own site!

Posted by: Mark on August 13, 2003 01:47 PM

Brad, if fierce competition is so great, why did you ever accept the monopoly rights of tenure?

O Physician, heal thyself!

Posted by: General Glut on August 14, 2003 06:36 AM

Brad, if fierce competition is so great, why did you ever accept the monopoly rights of tenure?

O Physician, heal thyself!

Posted by: General Glut on August 14, 2003 06:41 AM
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