Does Price Matter? Price and Non-price Competition in the Airline Industry
AbstractThis paper studies passengers' choice behavior in air travel. Products are defined as a unique combination of airline and flight itinerary while markets are defined as a directional round-trip air travel between an origin and a destination city. A structural econometric model is used to investigate the relative importance of price (airfare) and non-price product characteristics in explaining passengers' choice of these differentiated products. The results suggest that, on average, prices may not be as important as we think in explaining passengers' choice behavior among alternative products. Non-price characteristics which may include convenience of flight schedules, frequent flyer programs, the quality of in-flight service, among other things, seem to be much more important in explaining passengers' choice behavior. As such, the results have implications for the focus of antitrust policies in the airline industry when assessing the impact of mergers, alliances, or other business decisions of airlines
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 163.
Date of creation: 11 Aug 2004
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Discrete Choice; Mixed Logit; Airlines; Hub and Spoke Network; Frequent Flyer Programs;
Find related papers by JEL classification:
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-COM-2004-08-16 (Industrial Competition)
- NEP-DCM-2004-08-16 (Discrete Choice Models)
- NEP-IND-2004-08-31 (Industrial Organization)
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