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Airline choice, switching costs and frequent flyer programmes

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Author Info
Fredrik Carlsson
Åsa Löfgren

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Abstract

Switching 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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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 13 (July)
Pages: 1469-1475
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Handle: RePEc:taf:applec:v:38:y:2006:i:13:p:1469-1475

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January. [Downloadable!] (restricted)
  2. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 515-39, October. [Downloadable!] (restricted)
  3. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall. [Downloadable!] (restricted)
  4. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  5. Moshe Kim & Doron Kliger & Bent Vale, 2001. "Estimating Switching Costs and Oligopolistic Behavior," Center for Financial Institutions Working Papers 01-13, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  6. Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers 436, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Raquel Carrasco & José M. Labeaga & J. David López-Salido, 2002. "Consumption And Habits: Evidence From Panel Data," Economics Working Papers we023415, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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  8. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring. [Downloadable!] (restricted)
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  9. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju. [Downloadable!] (restricted)
  10. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring. [Downloadable!] (restricted)
  11. Löfgren, Åsa, 2003. "The Effect of Addiction on Environmental Taxation in a First and Second-best world," Working Papers in Economics 91, Göteborg University, Department of Economics. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jens Metge, 2007. "Protecting the Domestic Market: Industrial Policy and Strategic Firm Behaviour," Levine's Bibliography 122247000000001644, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Jiyoung Kim, 2006. "A Structural Analysis for Consumer's Dynamic Switching Decision in the Cellular Service Industry," Working Papers 06-24, NET Institute, revised Oct 2006. [Downloadable!]
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