Review of Industrial Organization 14: 147–162, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
Publication of Information and Market Response:
The Case of Airline on Time Performance Reports
STEPHEN EARL FOREMAN
Assistant Professor, The Pennsylvania State University, 115 Henderson, University Park, PA 16802,
DENNIS G. SHEA
Associate Professor, The Pennsylvania State University, 115 Henderson, University Park, PA 16802,
Abstract. This paper investigates market response to publication of on time performance informa-
tion. Theory suggests that reduction in search costs generates more honest airlines and better quality
service, a distribution of price-quality bundles, increased demand, exit by inefﬁcient airlines and
reduction of price rigidity. An ARIMA study of U.S. domestic airline operations ﬁnds that after
publication of performance information the market generated better performance, increased quality
distribution, enhanced demand, exit by four of fourteen airlines and reduced price-quality rigid-
ity. Publication of information may improve performance in markets characterized by asymmetric
information and high search costs.
Key words: Search, information, market performance.
A perfectly competitive market produces a Pareto efﬁcient equilibrium, an al-
location of resources for which no trade can improve the positions of any two
participants (Debreu, 1959). The fundamental assumptions underlying the exis-
tence of such a world include the absence of market power, free entry and exit,
homogenous products and perfect information (Arrow and Hahn, 1971). Most mar-
kets fail to produce these conditions, to one degree or another. The greatest single
impediment may well be the lack of perfect information. For example, in the market
for services, producers (e.g., airlines) generally have better information than con-
sumers about the quality of their product. While theory supports the proposition
that the publication of information improves performance, it has not been con-
ﬁrmed by systematic empirical study. Moreover, while there is some discussion
in the literature about the effect of publication of information in markets with
information asymmetries and a number of regulatory responses have taken this