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Price discrimination in the airline market: the effect of market concentration

  • Joanna Stavins
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    Economic theory suggests that a monopolist can price discriminate more successfully than can a perfectly competitive firm. Most real-life markets, however, fall somewhere in between the two extremes. What happens as the market becomes more competitive: Does price discrimination increase or decrease? This paper examines how price discrimination changes with market concentration in the airline market. The paper uses data on prices and ticket restrictions across various routes within the United States, controlling for distances and airport gate restrictions. Price discrimination is found to increase as the markets become more competitive.

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    File URL: http://www.bostonfed.org/economic/wp/wp1996/wp96_7.htm
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    File URL: http://www.bostonfed.org/economic/wp/wp1996/wp96_7.pdf
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    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 96-7.

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    Date of creation: 1996
    Date of revision:
    Publication status: Published in Review of Economics and Statistics 83, no. 1 (February 2001).
    Handle: RePEc:fip:fedbwp:96-7
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    1. Morrison, Steven A & Winston, Clifford, 1990. "The Dynamics of Airline Pricing and Competition," American Economic Review, American Economic Association, vol. 80(2), pages 389-93, May.
    2. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
    3. repec:att:wimass:9005 is not listed on IDEAS
    4. David R. Graham & Daniel P. Kaplan & David S. Sibley, 1983. "Efficiency and Competition in the Airline Industry," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 118-138, Spring.
    5. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
    6. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
    7. Hurdle, Gloria J, et al, 1989. "Concentration, Potential Entry, and Performance in the Airline Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 38(2), pages 119-39, December.
    8. 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.
    9. repec:att:wimass:9214 is not listed on IDEAS
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