Proposing a model for evaluating market efficiency of OTAs: Theoretical approach

Abstract

As one of the most popular exchange intermediary for travel products, the online travel agencies (OTAs) compete fiercely. Previous studies on the OTA market efficiency focus on the travel product prices and distribution channels competition, but contradictions and paradoxes can be found between the theoretical explanations and empirical results. This article proposed a theoretical model by identifying two determinants of the OTA market efficiency: the matching ability and market size. The study shows that (1) the matching ability improves the market efficiency by enlarging the market size and increasing the effective range of competition; (2) the comparative advantage in matching ability of one OTA will lead to the efficiency occupation of other OTAs; and that (3) new OTAs or long tail travel products may reduce market efficiency, but it provides the opportunity to reconstruct the traditional industrial chain. This study enriches the economic theory of OTA and provides commercial guides for practice.