Market Imperfections With Internet Travel – Economics Essay
The Internet is clearly a marvelous technological advance. It helps millions of people from all over the globe to exchange information almost instantly which certainly has big effect on markets throughout the world. It makes the
markets more competitive and more customers related. You might say that the internet is creating a “new” economy which is based on more information and communication. Many businesses know that in order to stay competitive they need to follow this new trend and many of them have. Today you can buy almost everything through the internet and it certainly is very convenient and easy. One of the markets that is particularly affected by the internet and the e-commerce is the travel industry. Before people, such as my parents, where more used to book a holiday through a travel magazine or a travel shop but that time has passed and nowadays most of my family holidays are booked through the internet. The reason to this is because it is easier and the amount of products and services is bigger. The e-commerce also makes the possibility of comparison between the different products much higher. All these factors have made the market better but the market is far from perfect and this is due to market imperfections.
In order for any market to be perfect the market should have a so-called “Perfect Competition”. If this would be the case there would be no market imperfections. But this is not the case and in the real world there are many market imperfections. In the real market there are market imperfections such as “Consumers Lack Perfect Knowledge”. This means that consumers are not completely aware of the products or services their buying. In most markets there exist entry barriers which make it hard for new companies to come in, due to such factors as high costs and brand loyalty to existing companies. While operating in the market the companies have the possibility to collude and keep up the prices. They may also differentiate their products and use advertising which makes it hard for the consumer to get a true picture of the
products. But the market imperfections have certainly been reduced since the launch of the e-commerce.
The travel industry has changed in dramatic ways since the advent of the internet. The e-commerce has added many new things to the knowledge of the consumers. Now days there is a greater price transparency, with the consumers able to compare different flight tickets and vacations on-line. There is greater information on the quality of the products since it is possible to read reviews of people already used the service. Travellers now use this medium of e-commerce to plan and prepare trips. The suppliers are trying to offer cheaper trips in order to stay competitive and the internet helps to avoid the service charges added by the companies. The e-commerce has helped new travel agencies enter the market and has diminished the control by large firms to overcharge prices. The technical components that make up the travel industry have changed as well since the Internet’s arrival. The emergence of travel web sites such as Planet Rider and online travel companies such as My Travel has taken the web by storm and forced travel agencies to rethink their approaches and adapt to the popularity of the Internet.
The arrival of a homepage like My Travel has changed the travel market in many ways. The homepage offers everything to satisfy a customer needs. They offer a variety of products such as Ski Holidays, Sun Holidays, and Cruises. By using their homepage a customer can easily find out everything about the company from their history to their board of directors. The homepage enables the customer to ‘Shop around’ and compare prices with their competitors such as Expedia. The customer can easily compare the prices of the different trips and it makes the planning of the trip very easy. The customer saves time and nerves on waiting in telephone cues. The page is very easy to use and it should not be a problem for a person even with low knowledge of the internet. A homepage like this helps to lower entry barriers and increases competition which results in better quality and lower cost products. It also enhances the use of travel since the price are low and this attract new customers.
A homepage like EasyJet.com under eases the long process of ticket booking. Before the process of ticket booking was either done through telephone service or ticket shops. Now days a ticket can be booked through a simple click on the mouse button. The customer is provided with a long range of products and can easily compare prices between rivals. And you might even notice that even though Easy Jet is a low price carrier it might sometimes charge more than normal airline carriers (see appendices). The homepage constantly updates new special offers and has features that help the customer to create a trip just the way he wants it. The homepage is translated into 7 different languages and is therefore easy to use for a person with low language skills. The homepage provides services to customers to find out everything about the routes even such things as the weather. The online ticket booking does not online benefit the customers but also the companies. It helps the companies to reduce their overall costs allowing them to invest in ways to improve their market presence. Due to the low costs offered by the company the competition increases and other air carriers such as British Airways are forced to cut down their prices. This surely makes the market more competitive and benefits the customer.
The Travelocity homepage is another example of a very simple and straight forward homepage. It offers a wide range of products such as flights, hotels, cars/rail, vacations, cruises and last minute deals. It is a very good homepage that is easy to use and offers and impressive variety of products. The homepage offers good information about the company as well as their products. The homepage even gives you ideas of what to do when you arrive to your destination. The consumer benefits from the homepage since it is open 24/7 and the prices are fairly low. The homepage in general helps the company to lower their distribution costs and gives them the potential to expand considerably and create a direct relationship with their customers. It helps the market to be more competitive and gives the customers a higher knowledge and possibility to compare products (see appendices). A homepage like this also helps lowering the entry barriers since the set up costs for such a homepage are very low.
Obviously the internet has improved not only the travel market but the market in general. The booking of travel online is perhaps the most successful niche of all of the world’s e-commerce efforts. It has benefited the consumer in many ways. Now days the consumer has the possibility of buying a wide range of products to lower prices, easily compare the prices of suppliers, finding useful information about the products and easily buying the products by simple mouse clicks. The internet has helped to reduce the costs for both consumers and suppliers. It has helped to reduce the entry barriers and increase the competition. But the Internet is far from being perfect due to several factors such as technical problems and credit card scams. There has been the last few years, a growing problem with credit card scams using the internet. This is a world wide fraud and uses debit and credit cards. This is certainly a big problem for the e-commerce and costs several millions every year. But in general the advantages of the e-commerce overcome the disadvantages. In future I think that the companies within the travel industry which do not take the e-commerce into account will find it very hard to compete and will probably be left out of business.
* My Travel
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* Easy Jet
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* British Airways
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* Easy Jet
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* Sloman J., (2003) Economics (fifth edition) UK: Pearson Education Limited