Several authors have argued that because modern computing and communications technologies reduce buyer search costs and other market inefficiencies, there should be intense price competition between sellers in electronic markets. This paper examines this prediction using data on the airline ticket offerings of online travel agents (OTA). We find that different OTAs offer tickets with substantially different prices and characteristics when given the same customer request. While some of this variation in price is accounted for by systematic variation in ticket quality, ticket prices vary by as much as 20% across OTAs even after accounting for differences in ticket characteristics. We therefore conclude that the market is not characterized by undifferentiated Bertrand competition. Our results suggest that product differentiation is an important component of strategy for electronic markets, even in goods with relatively simple and unambiguous product descriptions. 1 1. Introduction Numer...
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