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Airline Market Power and Intertemporal Price Dispersion

Author Info

Listed author(s):
  • Alberto A. Gaggero
  • Claudio A. Piga

Abstract

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.

(This abstract was borrowed from another version of this item.)

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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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Find related papers by JEL classification:
  • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
  • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
  • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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  1. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-250, March.
  2. Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre.
  3. 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 135-146, March.
  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. Jenkins, S., 1988. "The Measurement Of Economic Inequality," Papers 170, Australian National University - Department of Economics.
  6. Claudio A. Piga & Enrico Bachis, 2006. "Pricing strategies by European traditional and low cost airlines. Or, when is it the best time to book on line?," Discussion Paper Series 2006_14, Department of Economics, Loughborough University, revised Jul 2006.
  7. Gale, Ian L. & Holmes, Thomas J., 1992. "The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 413-437, September.
  8. Giaume, Stephanie & Guillou, Sarah, 2004. "Price discrimination and concentration in European airline markets," Journal of Air Transport Management, Elsevier, vol. 10(5), pages 305-310.
  9. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
  10. 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.
  11. 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.
  12. Kathy J. Hayes & Leola B. Ross, 1998. "Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(5), pages 523-541, October.
  13. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
  14. 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.
  15. Nancy L. Stokey, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 355-371.
  16. Gale, I., 1992. "Price Dispersion in a Market with Advance Purchases," Working papers 9214, Wisconsin Madison - Social Systems.
  17. 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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