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Sensitivity of Prices to Demand Shocks: A Natural Experiment in the San Francisco Bay Area

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  • Volodymyr Bilotkach

    ()
    (University of California-Irvine)

  • Yuriy Gorodnichenko

    ()
    (University of California-Berkeley)

  • Oleksandr Talavera

    ()
    (School of Economics, University of East Anglia)

Abstract

We analyze the impact of a freeway interchange collapse in the San Francisco Bay area on the difference in airfare quotes for travel into the area's main airports. The incident temporarily made Oakland airport a less attractive choice for traveling to San Francisco. Using a sample of fare quotes collected on-line we find that fares for travel into Oakland were 6-7 percent lower while the interchange was out of service. Our results imply that the demand-side shock was well absorbed by the supply side, and adjustment of prices and return to the status quo once the shock vanished was swift.

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Bibliographic Info

Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Applied and Financial Economics Working Paper Series with number 004.

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Date of creation: 21 Apr 2010
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Handle: RePEc:uea:aepppr:2010_4

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Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
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Related research

Keywords: natural experiment; price stability; demand shocks; congestion;

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  1. Jun Ishii & Sunyoung Jun & Kurt Van Dender, 2006. "Air Travel Choices in Multi-Airport Markets," Working Papers 050622, University of California-Irvine, Department of Economics.
  2. Brownstone, David & Small, Kenneth A., 2003. "Valuing Time and Reliability: Assessing the Evidence from Road Pricing Demonstrations," University of California Transportation Center, Working Papers qt95z0p35k, University of California Transportation Center.
  3. Richard J. Arnott & Joseph E. Stiglitz, 1981. "Aggregate Land Rents and Aggregate Transport Costs," NBER Working Papers 0523, National Bureau of Economic Research, Inc.
  4. Small, Kenneth A, 2004. "6. Road Pricing And Public Transport," Research in Transportation Economics, Elsevier, vol. 9(1), pages 133-158, January.
  5. Basar, Gözen & Bhat, Chandra, 2004. "A parameterized consideration set model for airport choice: an application to the San Francisco Bay Area," Transportation Research Part B: Methodological, Elsevier, vol. 38(10), pages 889-904, December.
  6. Pels, Eric & Nijkamp, Peter & Rietveld, Piet, 2003. "Access to and competition between airports: a case study for the San Francisco Bay area," Transportation Research Part A: Policy and Practice, Elsevier, vol. 37(1), pages 71-83, January.
  7. Harumi Ito & Darin Lee, 2007. "Domestic Code Sharing, Alliances, and Airfares in the U.S. Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 355-380.
  8. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
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