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Are Frequent-Flyer Programs a Cause of the "Hub Premium"?

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  • Mara Lederman
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    Abstract

    "This paper estimates the relationship between frequent-flyer programs (FFPs) and fares at hub airports. I exploit the formation of partnerships that allowed members of one airline's FFP to earn that airline's points on flights operated by its partner. If FFPs allow an airline to charge higher fares on routes that depart from its hubs, these partnerships should allow an airline's partner to charge higher fares on routes that depart from these same airports. I find that offering the FFP points of the dominant carrier at an airport does, indeed, lead to higher fares. Combining these estimates with estimates of the "hub premium" suggests that FFPs may account for at least 25% of the "hub premium."" Copyright 2008 Blackwell Publishing.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 17 (2008)
    Issue (Month): 1 (03)
    Pages: 35-66

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    Handle: RePEc:bla:jemstr:v:17:y:2008:i:1:p:35-66

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    Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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    Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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    Cited by:
    1. Caminal, Ramon, 2009. "The design and efficiency of loyalty rewards," CEPR Discussion Papers 7588, C.E.P.R. Discussion Papers.
    2. Aguirregabiria, Victor & Ho, Chun-Yu, 2012. "A dynamic oligopoly game of the US airline industry: Estimation and policy experiments," Journal of Econometrics, Elsevier, vol. 168(1), pages 156-173.
    3. Benjamin Dachis, 2014. "Full Throttle: Reforming Canada's Aviation Policy," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 398, January.
    4. Severin Borenstein, 2011. "Why Can't US Airlines Make Money?," American Economic Review, American Economic Association, vol. 101(3), pages 233-37, May.
    5. Escobari, Diego, 2010. "Frequent flyer programs premium and the role of airport dominance," MPRA Paper 36231, University Library of Munich, Germany.
    6. Bilotkach, Volodymyr & Lakew, Paulos Ashebir, 2014. "On sources of market power in the airline industry: Panel data evidence from the US airports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 288-305.
    7. Ramon Caminal, 2009. "The design and efficiency of loyalty rewards," Working Papers 408, Barcelona Graduate School of Economics.
    8. Bar, Michael & Chernomaz, Kirill & Diego, Escobari, 2010. "Pricing and travelers' decision to use frequent flyer miles: evidence from the U.S. airline industry," MPRA Paper 32201, University Library of Munich, Germany.
    9. Fu, Xiaowen & Homsombat, Winai & Oum, Tae H., 2011. "Airport–airline vertical relationships, their effects and regulatory policy implications," Journal of Air Transport Management, Elsevier, vol. 17(6), pages 347-353.
    10. Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.

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