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Airline Market Power and Intertemporal Price Dispersion

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  • Alberto A. Gaggero
  • Claudio A. Piga

Abstract

This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the UK and the Republic of Ireland. Price dispersion is measured by a number of inequality indexes, calculated using fares posted on the Internet at specific days before takeoff. We find a negative correlation between market dominance and price dispersion; thus competition appears to hinder the airlines' ability to price discriminate to exploit consumers' heterogeneity in booking time preferences. Moreover, in the Christmas and Easter periods of high demand, fares are less dispersed, possibly because airlines target a less heterogenous set of consumers.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 59 (2011)
Issue (Month): 4 (December)
Pages: 552-577

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Handle: RePEc:bla:jindec:v:59:y:2011:i:4:p:552-577

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References

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  1. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-83, August.
  2. Claudio A. Piga & Enrico Bachis, 2006. "Pricing strategies by European traditional and low cost airlines. Or, when is it the best time to book on line?," Discussion Paper Series 2006_14, Department of Economics, Loughborough University, revised Jul 2006.
  3. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
  4. Giaume, Stephanie & Guillou, Sarah, 2004. "Price discrimination and concentration in European airline markets," Journal of Air Transport Management, Elsevier, vol. 10(5), pages 305-310.
  5. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
  6. repec:att:wimass:9005 is not listed on IDEAS
  7. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
  8. Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre.
  9. Gale, Ian L. & Holmes, Thomas J., 1992. "The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 413-437, September.
  10. Kathy J. Hayes & Leola B. Ross, 1998. "Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?," Review of Industrial Organization, Springer, vol. 13(5), pages 523-541, October.
  11. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
  12. Kristopher S. Gerardi & Adam Hale Shapiro, 2009. "Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 1-37, 02.
  13. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
  14. repec:att:wimass:9214 is not listed on IDEAS
  15. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
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Citations

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Cited by:
  1. Escobari, Diego, 2012. "Asymmetric Price Adjustments in Airlines," MPRA Paper 42115, University Library of Munich, Germany.
  2. Evangelinos, Christos & Obermeyer, Andy & Püschel, Ronny, 2011. "Preisdispersion und Wettbewerb im Luftverkehr: Ein theoretischer und empirischer Überblick," Discussion Papers 2/2011, Dresden University of Technology, Faculty of Transportation and Traffic Sciences "Friedrich List", Institute for Transport and Economics.
  3. Marco Alderighi & Marcella Nicolini & Claudio A. Piga, 2012. "Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline," Working Papers 2012.14, Fondazione Eni Enrico Mattei.
  4. Siegert, Caspar & Ulbricht, Robert, 2014. "Dynamic Oligopoly Pricing: Evidence from the Airline Industry," TSE Working Papers 14-478, Toulouse School of Economics (TSE).
  5. Seongman Moon & Makoto Watanabe, 2011. "Refundability and Price: Empirical Analysis on the Airline Industry," Working Papers 1107, Research Institute for Market Economy, Sogang University.
  6. Marc Möller & Makoto Watanabe, 2013. "Competition in the Presence of Individual Demand Uncertainty," CESifo Working Paper Series 4490, CESifo Group Munich.
  7. Volodymyr Bilotkach & Alberto A. Gaggero & Claudio A. Piga, 2011. "Airline Pricing under Different Market Conditions: Evidence from European Low-Cost Carriers," Working Paper Series 47_11, The Rimini Centre for Economic Analysis.
  8. Marc M�ller & Makoto Watanabe, 2013. "Competition in the Presence of Individual Demand Uncertainty," Tinbergen Institute Discussion Papers 13-185/V, Tinbergen Institute.
  9. Angela Stefania Bergantino & Capozza, Claudia, 2012. "Airline Pricing Behaviour Under Limited Intermodal Competition," Working Papers 1206, SIET Società Italiana di Economia dei Trasporti e della Logistica, revised 2012.
  10. Obermeyer, Andy & Evangelinos, Christos & Püschel, Ronny, 2013. "Price dispersion and competition in European airline markets," Journal of Air Transport Management, Elsevier, vol. 26(C), pages 31-34.

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