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Is the Effect of Competition on Price Dispersion Nonmonotonic? Evidence from the U.S. Airline Industry

Author

Listed:
  • Mian Dai

    (Drexel University)

  • Qihong Liu

    (University of Oklahoma)

  • Konstantinos Serfes

    (Drexel University)

Abstract

We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a nonmonotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but with less price dispersion in competitive markets—an inverse-U relationship. Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Mian Dai & Qihong Liu & Konstantinos Serfes, 2014. "Is the Effect of Competition on Price Dispersion Nonmonotonic? Evidence from the U.S. Airline Industry," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 161-170, March.
  • Handle: RePEc:tpr:restat:v:96:y:2014:i:1:p:161-170
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    2. Nemet, Gregory F. & O’Shaughnessy, Eric & Wiser, Ryan & Darghouth, Naïm & Barbose, Galen & Gillingham, Ken & Rai, Varun, 2017. "Characteristics of low-priced solar PV systems in the U.S," Applied Energy, Elsevier, vol. 187(C), pages 501-513.
    3. Haizhen Lin & Yijia Wang, 2012. "Competition and Price Discrimination in the Parking Garage Industry," Working Papers 2012-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    4. repec:eee:ecolet:v:164:y:2018:i:c:p:1-4 is not listed on IDEAS
    5. Marc Möller & Makoto Watanabe, 2016. "Market Structure and Advance Selling," Tinbergen Institute Discussion Papers 16-020/VII, Tinbergen Institute.
    6. repec:wly:soecon:v:85:y:2019:i:3:p:639-662 is not listed on IDEAS
    7. repec:eee:ecotra:v:11-12:y:2017:i::p:49-59 is not listed on IDEAS
    8. Vigren, Andreas, 2016. "Competition in Swedish passenger railway : entry in an open-access market," Working papers in Transport Economics 2016:18, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    9. repec:eee:transe:v:120:y:2018:i:c:p:35-50 is not listed on IDEAS
    10. Marius Agasse-Duval & Steve Lawford, 2019. "Subgraphs and Motifs in a Dynamic Airline Network," Working Papers hal-02017122, HAL.
    11. Diego Escobari & Nicholas G. Rupp & Joseph Meskey, 2019. "An Analysis of Dynamic Price Discrimination in Airlines," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 639-662, January.
    12. repec:bla:jindec:v:65:y:2017:i:2:p:235-274 is not listed on IDEAS
    13. Dagoumas, Athanasios & Polemis, Michael, 2018. "Analysing Carbon Pass-Through Rate Mechanism in the Electricity Sector: Evidence from Greece," MPRA Paper 91067, University Library of Munich, Germany.
    14. Levent Kutlu, 2015. "Limited Memory Consumers and Price Dispersion," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(4), pages 349-357, June.
    15. Charles Angelucci & Julia Cage & Romain de Nijs, 2013. "Price Discrimination in a Two-Sided Market: Theory and Evidence from the Newspaper Industry," Working Papers 13-13, NET Institute.
    16. Haizhen Lin & Isabelle Yijia Wang, 2015. "Competition and Price Discrimination: Evidence from the Parking Garage Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 63(3), pages 522-548, September.
    17. Roma, Paolo & Zambuto, Fabio & Perrone, Giovanni, 2014. "Price dispersion, competition, and the role of online travel agents: Evidence from business routes in the Italian airline market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 146-159.
    18. repec:kap:revind:v:51:y:2017:i:1:d:10.1007_s11151-016-9544-x is not listed on IDEAS
    19. Halkos, George & Polemis, Michael, 2018. "Does market structure trigger efficiency? Evidence for the USA before and after the financial crisis," MPRA Paper 84511, University Library of Munich, Germany.
    20. Polemis, Michael & Tselekounis, Markos, 2019. "Does deregulation drive innovation intensity? Lessons learned from the OECD telecommunications sector," MPRA Paper 92770, University Library of Munich, Germany.
    21. Escobari, Diego & Rupp, Nicholas & Meskey, Joseph, 2018. "Dynamic Price Discrimination in Airlines," MPRA Paper 88078, University Library of Munich, Germany.
    22. repec:bla:ecinqu:v:57:y:2019:i:2:p:1215-1230 is not listed on IDEAS

    More about this item

    Keywords

    price dispersion; second-degree price discrimination; airline industry;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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