Newcastle University

We examine the financial consequences of a reseller excluding a certain supplier. We take advantage of a recent conflict between American Airlines and two leading U.S. online travel agencies (Expedia and Orbitz), which led to the suspension of American Airlines fares during the first quarter of 2011. We analyze price data for the first quarter of 2010 and 2011, employing a simple difference-in-differences identification strategy to evaluate changes in American Airlines ’ domestic fares due to this conflict. After controlling for across market heterogeneity, carrier-specific time-invariant effects, and time-specific carrier-invariant effects, American Airlines ’ domestic fares during the conflict were 2.7-4.2 percent lower than similar fares charged by American’s main competitors (United, Continental, Delta, and US Airways). The fare effect is most pronounced in the sub-sample of one-stop itineraries, where competition is stronger, and customers are more likely to have to rely on travel agents – rather than carriers ’ own web-sites – for flight bookings. While American’s fares may have dropped, we find minimal impact on passenger counts and load factors. In sum, we find between a $35 to $40 million short-term reduction in American’s revenue due to this online travel dispute. The long-term impact on American’s profit, however, is unclear because the carrier may have gained some bargaining power and negotiated more favorable terms in their most recent confidential contracts with Expedia and Orbitz