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Airline Market Power and Intertemporal Price Dispersion

  • Alberto A. Gaggero
  • Claudio A. Piga

This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the UK and the Republic of Ireland. Price dispersion is measured by a number of inequality indexes, calculated using fares posted on the Internet at specific days before takeoff. We find a negative correlation between market dominance and price dispersion; thus competition appears to hinder the airlines' ability to price discriminate to exploit consumers' heterogeneity in booking time preferences. Moreover, in the Christmas and Easter periods of high demand, fares are less dispersed, possibly because airlines target a less heterogenous set of consumers.

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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 59 (2011)
Issue (Month): 4 (December)
Pages: 552-577

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Handle: RePEc:bla:jindec:v:59:y:2011:i:4:p:552-577
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  1. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
  2. James D. Dana Jr., 1999. "Equilibrium Price Dispersion Under Demand Uncertainty: The Roles of Costly Capacity and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 632-660, Winter.
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  4. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
  5. Kristopher S. Gerardi & Adam Hale Shapiro, 2009. "Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 1-37, 02.
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  11. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
  12. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
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  14. Jenkins, S., 1988. "The Measurement Of Economic Inequality," Papers 170, Australian National University - Department of Economics.
  15. Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre.
  16. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
  17. Kathy J. Hayes & Leola B. Ross, 1998. "Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?," Review of Industrial Organization, Springer, vol. 13(5), pages 523-541, October.
  18. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
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