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Baggage fees in airlines: Is this a good idea?

Author

Listed:
  • Botteon Costa, Raone
  • Ferman, Bruno
  • Monte, Daniel

Abstract

A recurrent policy question in the airline industry is whether baggage should be priced independently from airline tickets. We show that this policy has ambiguous welfare implications, depending on the cost of carrying luggage and on the market power of the firm. The intuition is simple: there is a trade-off between over-consumption caused by the non-existence of a baggage price against under- consumption caused by firm markups in the case of a separate price for baggages. The commonly used argument that the price of travelling without luggage might drop under a two price-system does not hold in our model.

Suggested Citation

  • Botteon Costa, Raone & Ferman, Bruno & Monte, Daniel, 2020. "Baggage fees in airlines: Is this a good idea?," MPRA Paper 101864, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101864
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    File URL: https://mpra.ub.uni-muenchen.de/101864/1/MPRA_paper_101864.pdf
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    References listed on IDEAS

    as
    1. Scotti, Davide & Dresner, Martin, 2015. "The impact of baggage fees on passenger demand on US air routes," Transport Policy, Elsevier, vol. 43(C), pages 4-10.
    2. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2014. "A Simple Framework for Estimating Consumer Benefits from Regulating Hidden Fees," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 239-252.
    3. Mark Armstrong & John Vickers, 2010. "Competitive Non-linear Pricing and Bundling," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(1), pages 30-60.
    4. Sebastien Bradley & Naomi E. Feldman, 2020. "Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 58-87, November.
    5. Barone, Gerhard J. & Henrickson, Kevin E. & Voy, Annie, 2011. "Baggage Fees and Airline Performance: A Case Study of Initial Investor Misperception," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 51(01).
    6. Mariana Nicolae & Mazhar Arıkan & Vinayak Deshpande & Mark Ferguson, 2017. "Do Bags Fly Free? An Empirical Analysis of the Operational Implications of Airline Baggage Fees," Management Science, INFORMS, vol. 63(10), pages 3187-3206, October.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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