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Airline choice, switching costs and frequent flyer programs

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Author Info

  • Carlsson, Fredrik

    ()
    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

  • Löfgren, Åsa

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

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 we estimate the switching costs for domestic airline routes in Sweden between 1992 and 2002. In addition we also test for the determinants of switching costs. In particular we test to what extent factors such as frequent flyer programs and flag carriers have an effect on switching costs. The paper ends with a brief discussion on the welfare consequences of switching cots, where the connection between habit formation and switching costs is discussed.

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File URL: http://hdl.handle.net/2077/2812
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 123.

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Length: 14 pages
Date of creation: 29 Jan 2004
Date of revision:
Handle: RePEc:hhs:gunwpe:0123

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Keywords: Switching costs; frequent flyer programs; habit formation;

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  1. Robert D. Cairns & John W. Galbraith, 1990. "Artificial Compatibility, Barriers to Entry, and Frequent-Flyer Programs," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 23(4), pages 807-16, November.
  2. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(4), pages 181-93, Fall.
  3. Farrell, Joseph & Shapiro, Carl, 1988. "Dynamic Competition with Switching Costs," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. 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.
  5. Löfgren, Åsa, 2003. "The Effect of Addiction on Environmental Taxation in a First and Second-best world," Working Papers in Economics, University of Gothenburg, Department of Economics 91, University of Gothenburg, Department of Economics.
  6. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, Econometric Society, vol. 60(3), pages 651-66, May.
  7. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  8. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(1), pages 71-87, January.
  9. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju.
  10. Proussaloglou, Kimon & Koppelman, Frank S., 1999. "The choice of air carrier, flight, and fare class," Journal of Air Transport Management, Elsevier, Elsevier, vol. 5(4), pages 193-201.
  11. Moshe Kim & Doron Kliger & Bent Vale, 2001. "Estimating Switching Costs and Oligopolistic Behavior," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 01-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
  12. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(4), pages 515-39, October.
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Cited by:
  1. Lundberg, Johan & Lundberg, Sofia, 2010. "Retailer Choice and Loyalty Schemes - Evidence from Sweden," Umeå Economic Studies 34, Umeå University, Department of Economics.
  2. Jens Metge, 2007. "Protecting the Domestic Market: Industrial Policy and Strategic Firm Behaviour," Levine's Bibliography 122247000000001644, UCLA Department of Economics.
  3. de Boer, Evert R. & Gudmundsson, Sveinn Vidar, 2012. "30 years of frequent flyer programs," Journal of Air Transport Management, Elsevier, Elsevier, vol. 24(C), pages 18-24.
  4. Jorge Tarziján M, 2005. "Evaluación de la Autorización de Planes de Precio por Permanencia a las AFP," Working Papers, Superintendencia de Pensiones 10, Superintendencia de Pensiones, revised Aug 2005.
  5. Fröidh, Oskar & Byström, Camilla, 2013. "Competition on the tracks – Passengers’ response to deregulation of interregional rail services," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 56(C), pages 1-10.
  6. Paha, Johannes & Rompf, Dirk & Warnecke, Christiane, 2013. "Customer choice patterns in passenger rail competition," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 50(C), pages 209-227.
  7. Martín, Juan Carlos & Román, Concepción & Espino, Raquel, 2011. "Evaluating frequent flyer programs from the air passengers' perspective," Journal of Air Transport Management, Elsevier, Elsevier, vol. 17(6), pages 364-368.

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