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Fare dispersions in airline markets: A quantitative assessment of theoretical explanations

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  • Alderighi, Marco

Abstract

There are substantial fare dispersions in the airline industry. There are various theoretical explanations of this, but they only provide a qualitative justification of the phenomenon. This paper simulates the quantitative outcome of three popular models to evaluate their ability to generate substantial fare dispersions. We find that, in duopoly, the maximum fare dispersion that each model can generate is quite limited; and, even for the most favourable case, it is about one-third of the observed fare variability. Moving to more competitive market structures, however, some models generate better results.

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  • Alderighi, Marco, 2010. "Fare dispersions in airline markets: A quantitative assessment of theoretical explanations," Journal of Air Transport Management, Elsevier, vol. 16(3), pages 144-150.
  • Handle: RePEc:eee:jaitra:v:16:y:2010:i:3:p:144-150
    DOI: 10.1016/j.jairtraman.2009.07.004
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    1. repec:eme:aiaezz:s2212-160920140000004006 is not listed on IDEAS
    2. Alfaro Navarro, José-Luis & Andrés Martínez, María-Encarnación & Trinquecoste, Jean-François, 2015. "The effect of the economic crisis on the behaviour of airline ticket prices. A case-study analysis of the New York–Madrid route," Journal of Air Transport Management, Elsevier, vol. 47(C), pages 48-53.
    3. Escobari, Diego, 2014. "Estimating dynamic demand for airlines," Economics Letters, Elsevier, vol. 124(1), pages 26-29.
    4. Domínguez-Menchero, J. Santos & Rivera, Javier & Torres-Manzanera, Emilio, 2014. "Optimal purchase timing in the airline market," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 137-143.
    5. Diego Escobari & Cristhian Mellado, 2014. "The Choice of Airport, Airline, and Departure Date and Time: Estimating the Demand for Flights," Advances in Airline Economics,in: The Economics of International Airline Transport, volume 4, pages 177-198 Emerald Publishing Ltd.
    6. Marco Alderighi & Marcella Nicolini & Claudio A. Piga, 2012. "Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline," Quaderni di Dipartimento 171, University of Pavia, Department of Economics and Quantitative Methods.

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