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Demand shifting across flights and airports in a spatial competition model

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  • Diego Escobari

    ()

  • Sang-Yeob Lee

    ()

Abstract

This paper investigates the nature of day-to-day competition between flights using a unique panel data set on prices and inventories. We use instrumental variables methods and several spatial autoregressive models (SAR) to estimate price reaction functions. The primary source of product differentiation is departure time. After controlling for flight-specific characteristics and various sources of price dispersion, we find important evidence of demand shifting between competing flights. Most of the shift is being captured by flights scheduled to depart within a 3-hour window. We find no evidence of demand shifting between airports. Copyright Springer-Verlag 2012

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File URL: http://hdl.handle.net/10.1007/s12076-012-0081-4
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Bibliographic Info

Article provided by Springer in its journal Letters in Spatial and Resource Sciences.

Volume (Year): 5 (2012)
Issue (Month): 3 (October)
Pages: 175-183

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Handle: RePEc:spr:lsprsc:v:5:y:2012:i:3:p:175-183

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Web page: http://www.springer.com/economics/journal/12076

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Related research

Keywords: Spatial autoregressive models; Competition; Demand shifting; Airlines; C21; D4; L93;

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References

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  1. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
  2. Lung-fei Lee, 2003. "Best Spatial Two-Stage Least Squares Estimators for a Spatial Autoregressive Model with Autoregressive Disturbances," Econometric Reviews, Taylor & Francis Journals, vol. 22(4), pages 307-335.
  3. Escobari, Diego, 2011. "Dynamic Pricing, Advance Sales, and Aggregate Demand Learning in Airlines," MPRA Paper 38509, University Library of Munich, Germany.
  4. Escobari, Diego, 2009. "Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence," MPRA Paper 34857, University Library of Munich, Germany.
  5. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
  6. 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.
  7. James D. Dana Jr., 1999. "Equilibrium Price Dispersion Under Demand Uncertainty: The Roles of Costly Capacity and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 632-660, Winter.
  8. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2011. "Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities," Tinbergen Institute Discussion Papers 11-118/3, Tinbergen Institute.
  9. 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.
  10. Joanna Stavins, 1996. "Price discrimination in the airline market: the effect of market concentration," Working Papers 96-7, Federal Reserve Bank of Boston.
  11. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
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Cited by:
  1. 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.
  2. Escobari, Diego & Lee, Jim, 2013. "Demand Uncertainty and Capacity Utilization in Airlines," MPRA Paper 46059, University Library of Munich, Germany.

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