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Competition and price dispersion in the airline markets

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Abstract:

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

DOI: https://doi.org/10.1080/00036846.2014.931919

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: 2014-10-02

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