Domestic airline alliances and consumer welfare
AbstractThis article investigates the consumer welfare consequences of the recent code-share agreement between Continental Airlines and Northwest Airlines. We develop a discrete choice model based on individual flight characteristics. This structural model recognizes that consumers (i) may have heterogeneous preferences for flight attributes, and (ii) may face different prices for the same flight. The empirical methodology also deals with the measurement error problem stemming from the absence of consumer-level data on prices. The estimation results suggest that, whereas the code-share agreement did not impact consumers significantly on average, it increased the average surplus of connecting passengers but decreased the average surplus of nonstop passengers. Interestingly, the magnitude of our welfare results may be attributed in large part to changes in product characteristics other than prices. Copyright (c) 2008, RAND.
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Bibliographic InfoArticle provided by RAND Corporation in its journal The RAND Journal of Economics.
Volume (Year): 39 (2008)
Issue (Month): 3 ()
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- Steven Berry & Panle Jia, 2008.
"Tracing the Woes: An Empirical Analysis of the Airline Industry,"
NBER Working Papers
14503, National Bureau of Economic Research, Inc.
- Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
- Escobari, Diego & Mellado, Cristhian, 2013. "The Choice of Airport, Airline, and Departure Date and Time: Estimating the Demand for Flights," MPRA Paper 47943, University Library of Munich, Germany.
- Philip G. Gayle, 2013. "On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 244-73, November.
- Severin Borenstein, 2011. "Why Can't US Airlines Make Money?," American Economic Review, American Economic Association, vol. 101(3), pages 233-37, May.
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