Advance selling and internet intermediary: travel distribution strategies in the e-commerce age

ABSTRACT

We investigate two challenges advance of e-commerce creates for traditional practice of travel distribution. First, we explore whether travel providers benefit from strategically controlling the timing to start advance selling. Second, we study when should travel providers use Internet intermediaries, in particular, should they promote or limit Internet intermediaries' distribution power? We find that the best timing for travel providers to start advance selling depends on the type of demand uncertainty they face. When the key uncertainty is spot demand, travel providers should not start advance selling too early if they expect higher advance selling price in later period. When travel providers face demand uncertainty in both advance and spot periods, they are worse off not using the advance channel; whether they should start advance selling early depends on advance and spot price, and demand ration between advance and spot periods. In studying travel providers' strategic position of whether to promote or limit Internet intermediary's distribution power, we find that when both parties possess the same quality of demand information, travel providers should always limit intermediary's distribution power under pure forwards contract; when the two parties possess different quality of information, the informational advantages of one party over the other plays a critical role. Surprisingly, in our model setting, travel providers should limit intermediary's distribution power when the latter has more accurate demand information or when the former have a slightly better informational advantage over the intermediary. Otherwise, when travel providers have a huge informational advantage over the intermediary, they should promote the intermediary.

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INDEX TERMS

Primary Classification:
  H. Information Systems
  H.4 INFORMATION SYSTEMS APPLICATIONS
      H.4.2 Types of Systems
          Subjects: Decision support (e.g., MIS)

General Terms:
Economics, Management

Keywords:
advance selling, distribution channel, distribution strategy, information qualities, internet intermediary