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Carriers’ Price Dispersion in the U.S. Airline Industry

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  • Chi, Junwook
  • Koo, Won W.
  • Lim, Siew Hoon

Abstract

This paper explores price dispersion in the U.S. airline industry by highlighting individual carriers’ price discrimination strategies. Using heteroskedasticity-adjusted instrumental variable technique, we found that individual carriers play crucial roles in determining price dispersion, implying that the carriers’ price discrimination strategies may influence variation in airfares. Based on the estimated price dispersion and the estimated average price, we distinguished sources of price dispersion by categorizing individual carriers’ pricing strategies. In 2005, for example, monopoly-type price discrimination was likely to result in price dispersion for Northwest, whereas competitive-type price discrimination was likely to lead to price dispersion for Delta. However, most of the carriers showed different types of pricing strategies under the same market conditions in 2000. Therefore, this paper supported evidence that the type of the pricing strategies is not equal across the U.S. air carriers.

Suggested Citation

  • Chi, Junwook & Koo, Won W. & Lim, Siew Hoon, 2009. "Carriers’ Price Dispersion in the U.S. Airline Industry," 50th Annual Transportation Research Forum, Portland, Oregon, March 16-18, 2009 207596, Transportation Research Forum.
    • Handle: RePEc:ags:ndtr09:207596
    DOI: 10.22004/ag.econ.207596
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    References listed on IDEAS

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    1. John D. Bitzan & Junwook Chi, 2006. "Higher Airfares to Small and Medium Sized Communities - Costly Service or Market Power?," Journal of Transport Economics and Policy, University of Bath, vol. 40(3), pages 473-501, September.
    2. 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.
    3. 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.
    4. 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.
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