IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v68y2020i3p556-581.html
   My bibliography  Save this article

On the Absence of Directional Price Discrimination in the U.S. Airline Industry

Author

Listed:
  • Matthew S. Lewis

Abstract

Certain forms of price discrimination in oligopoly markets can lead to more aggressive competition and lower profits, yet few empirical studies examine how extensively such strategies are used. I consider one such strategy, testing whether airlines charge different prices on the same flights to passengers that originate from different endpoints. Using fare quote data I formulate a new approach to measure discrimination while controlling for cost heterogeneity and find that carriers within the U.S. domestic market do not engage in directional price discrimination despite frequently using other similar pricing strategies that are unlikely to enhance competition.

Suggested Citation

  • Matthew S. Lewis, 2020. "On the Absence of Directional Price Discrimination in the U.S. Airline Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 556-581, September.
    • Handle: RePEc:bla:jindec:v:68:y:2020:i:3:p:556-581
    DOI: 10.1111/joie.12230
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joie.12230
    Download Restriction: no
    File URL: https://libkey.io/10.1111/joie.12230?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
    2. Joanna Stavins, 2001. "Price Discrimination in the Airline Market: The Effect of Market Concentration," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 200-202, February.
    3. Ambarish Chandra & Mara Lederman, 2018. "Revisiting the Relationship between Competition and Price Discrimination," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 190-224, May.
    4. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    5. 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.
    6. Greg Shaffer & Z. John Zhang, 1995. "Competitive Coupon Targeting," Marketing Science, INFORMS, vol. 14(4), pages 395-416.
    7. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    8. Aviv Nevo & Catherine Wolfram, 2002. "Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 319-339, Summer.
    9. Severin Borenstein, 1991. "The Dominant-Firm Advantage in Multiproduct Industries: Evidence from the U. S. Airlines," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1237-1266.
    10. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    11. Marcus Asplund & Rickard Eriksson & Niklas Strand, 2008. "Price Discrimination In Oligopoly: Evidence From Regional Newspapers," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 333-346, June.
    12. Nathan H. Miller & Matthew Osborne, 2014. "Spatial differentiation and price discrimination in the cement industry: evidence from a structural model," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 221-247, June.
    13. 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.
    14. 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, February.
    15. Luttmann, Alexander, 2019. "Evidence of directional price discrimination in the U.S. airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 291-329.
    16. 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.
    17. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    18. Steven L. Puller & Anirban Sengupta & Steven N. Wiggins, 2009. "Testing Theories of Scarcity Pricing in the Airline Industry," NBER Working Papers 15555, National Bureau of Economic Research, Inc.
    19. Puller, Steven L. & Taylor, Lisa M., 2012. "Price discrimination by day-of-week of purchase: Evidence from the U.S. airline industry," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 801-812.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lewis, Matthew S., 2021. "Identifying airline price discrimination and the effect of competition," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    2. Luttmann, Alexander & Gaggero, Alberto A, 2020. "Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry," MPRA Paper 104863, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marc Möller & Makoto Watanabe, 2016. "Competition in the presence of individual demand uncertainty," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 273-292, May.
    2. Luttmann, Alexander & Gaggero, Alberto A, 2020. "Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry," MPRA Paper 104863, University Library of Munich, Germany.
    3. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    4. Lewis, Matthew S., 2021. "Identifying airline price discrimination and the effect of competition," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    5. Luttmann, Alexander, 2019. "Evidence of directional price discrimination in the U.S. airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 291-329.
    6. Marcus Asplund & Rickard Eriksson & Niklas Strand, 2008. "Price Discrimination In Oligopoly: Evidence From Regional Newspapers," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 333-346, June.
    7. Simshauser, Paul, 2018. "Price discrimination and the modes of failure in deregulated retail electricity markets," Energy Economics, Elsevier, vol. 75(C), pages 54-70.
    8. Simshauser, Paul & Whish-Wilson, Patrick, 2017. "Price discrimination in Australia's retail electricity markets: An analysis of Victoria & Southeast Queensland," Energy Economics, Elsevier, vol. 62(C), pages 92-103.
    9. Rosa Branca Esteves, 2009. "A Survey on the Economics of Behaviour-Based Price Discrimination," NIPE Working Papers 5/2009, NIPE - Universidade do Minho.
    10. Gil, Ricard & Riera-Crichton, Daniel & Ruzzier, Christian, 2016. "As Seen on TV: Price Discrimination and Competition in Television Advertising," MPRA Paper 75993, University Library of Munich, Germany.
    11. Chengyan Gu, 2023. "Market segmentation and dynamic price discrimination in the U.S. airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(5), pages 338-361, October.
    12. He, Qingxin & Zheng, Xiaoyong, 2020. "Price discrimination across different ticket distribution channels: Evidence from the US-china flight market," China Economic Review, Elsevier, vol. 61(C).
    13. Nadia Ceschi & Marc Moeller, 2021. "Advance Selling in the Wake of Entry," Diskussionsschriften dp2109, Universitaet Bern, Departement Volkswirtschaft.
    14. Liu, Qihong & Shuai, Jie, 2013. "Multi-dimensional price discrimination," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 417-428.
    15. Jean-Pierre Dubé & Zheng Fang & Nathan Fong & Xueming Luo, 2017. "Competitive Price Targeting with Smartphone Coupons," Marketing Science, INFORMS, vol. 36(6), pages 944-975, November.
    16. Asplund, Marcus & Eriksson, Rickard & Strand, Niklas, 2001. "Price Discrimination in Oligopoly: Evidence from Swedish Newspapers," SSE/EFI Working Paper Series in Economics and Finance 468, Stockholm School of Economics, revised 01 Jan 2007.
    17. Puller, Steven L. & Taylor, Lisa M., 2012. "Price discrimination by day-of-week of purchase: Evidence from the U.S. airline industry," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 801-812.
    18. Gaggero, Alberto A. & Luttmann, Alexander, 2023. "The determinants of hidden-city ticketing: Competition, hub-and-spoke networks, and advance-purchase requirements," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 173(C).
    19. Jean-Pierre H. Dubé & Zheng Fang & Nathan Fong & Xueming Luo, 2016. "Competitive Price Targeting with Smartphone Coupons," NBER Working Papers 22067, National Bureau of Economic Research, Inc.
    20. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter‐Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:68:y:2020:i:3:p:556-581. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.