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Competition and price dispersion in the airline markets

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We use two ticket-level data sets on one-way domestic flights for the US airlines to examine the potentially nonlinear relationship between price dispersion and three forms of competition: inter-firm, inter-flight and frequency competitions. The linear relationship is rejected at any conventional significance levels. In particular, there is an S-shaped relationship between market concentration and price dispersion. This can be a reason for the mixed results in the literature. Roughly speaking, the inter-flight and frequency competitions have opposite effects on price dispersion. Finally, in general, the size of aircraft has a positive effect on price. However, for very large aircraft, the relationship becomes negative.

Keywords: D40; L10; L93; airlines; competition; price dispersion

Document Type: Research Article


Affiliations: 1: Department of Economics and Legal Studies, Oklahoma State University, Stillwater, OK, 74074, USA 2: School of Economics, Georgia Institute of Technology, Atlanta, GA, 30332, USA

Publication date: October 2, 2014

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