Airline choice, switching costs and frequent flyer programmes
AbstractSwitching costs are costs that customers face when switching from one firm to another. In markets such as the airline market where repeated purchases are common, switching costs may be substantial. In this paper, the switching costs are estimated for domestic airline routes in Sweden between 1992 and 2002. In addition, the determinants of these switching costs are tested for; in particular, to what extent factors such as frequent flyer programmes and flag carriers have an effect on switching costs. A substantial switching cost is found. Although a large part of this calculated switching cost can be attributed to perceived quality differences, it is also found that frequent flyer programmes contribute a non-negligible part of the switching cost. The paper ends with a brief discussion on the welfare consequences of switching costs, where the connection between habit formation and switching costs is discussed.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics.
Volume (Year): 38 (2006)
Issue (Month): 13 ()
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Other versions of this item:
- Carlsson, Fredrik & Löfgren, Åsa, 2004. "Airline choice, switching costs and frequent flyer programs," Working Papers in Economics 123, University of Gothenburg, Department of Economics.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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