Appropriating Value from Crs Ownership in the Airline Industry

It is difficult for the firm competing through information technology (IT) resources to gain asustainable advantage because systems are easy to imitate and often substitute resources are available tocompetitors. The innovator may be unable to appropriate all of the benefits from IT investments.Airlines have installed computerized reservations systems (CRSs) in travel agencies in order toappropriate the returns from their investments in information technology. The airlines expected to obtaina number of benefits from this strategy including increased efficiency, possible bias in favor of the CRSowner on the part of the travel agent, and fees from other airlines for making reservations for them. Thepurpose of this paper is to evaluate the appropriation of value by CRS owners from deploying systems intravel agencies. These benefits, beyond fees from travel agents, should be seen in the vendor airline'smarket share between cities and in the overall performance of the airline at an industry level. This papermodels airline performance as a function of CRS ownership at two levels: for selected city-pairs and atthe overall level of the firm. The city-pair analysis employs a multinomial logit (MNL) market sharemodel that analyzes five years of data on 72 city-pair routes. The industry model uses longitudinal datafor a panel of ten airlines for twelve years. The results of both analyses support hypotheses that CRSownership is positively related to airline performance. It appears that strong airlines have appropriatedthe benefits of their CRSs, turning them into highly specialized assets for further travel-relatedinnovation. This work offers useful theoretical extensions and methodological approaches for the studyof similar kinds of network technology innovations that are currently being deployed in association withelectronic commerce on the Internet