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Demand shifting across flights and airports in a spatial competition model

  • Diego Escobari


  • Sang-Yeob Lee


This paper investigates the nature of day-to-day competition between flights using a unique panel data set on prices and inventories. We use instrumental variables methods and several spatial autoregressive models (SAR) to estimate price reaction functions. The primary source of product differentiation is departure time. After controlling for flight-specific characteristics and various sources of price dispersion, we find important evidence of demand shifting between competing flights. Most of the shift is being captured by flights scheduled to depart within a 3-hour window. We find no evidence of demand shifting between airports. Copyright Springer-Verlag 2012

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Article provided by Springer in its journal Letters in Spatial and Resource Sciences.

Volume (Year): 5 (2012)
Issue (Month): 3 (October)
Pages: 175-183

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Handle: RePEc:spr:lsprsc:v:5:y:2012:i:3:p:175-183
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  1. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  2. Escobari, Diego, 2011. "Dynamic Pricing, Advance Sales, and Aggregate Demand Learning in Airlines," MPRA Paper 38509, University Library of Munich, Germany.
  3. 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.
  4. Lung-fei Lee, 2003. "Best Spatial Two-Stage Least Squares Estimators for a Spatial Autoregressive Model with Autoregressive Disturbances," Econometric Reviews, Taylor & Francis Journals, vol. 22(4), pages 307-335.
  5. Escobari, Diego, 2009. "Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence," Economics Letters, Elsevier, vol. 103(1), pages 59-61, April.
  6. 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.
  7. Joanna Stavins, 1996. "Price discrimination in the airline market: the effect of market concentration," Working Papers 96-7, Federal Reserve Bank of Boston.
  8. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
  9. Severin Borenstein & Nancy L. Rose, 1991. "Competition and Price Dispersion in the U.S. Airline Industry," NBER Working Papers 3785, National Bureau of Economic Research, Inc.
  10. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
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