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Demand shifting across flights and airports in a spatial competition model

  • Escobari, Diego
  • Lee, Sang-Yeob

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.

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File URL: http://mpra.ub.uni-muenchen.de/38799/1/MPRA_paper_38799.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38799.

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Date of creation: 17 Apr 2012
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Handle: RePEc:pra:mprapa:38799
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  1. 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 653-83, August.
  2. 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.
  3. Joanna Stavins, 1996. "Price discrimination in the airline market: the effect of market concentration," Working Papers 96-7, Federal Reserve Bank of Boston.
  4. Escobari, Diego, 2011. "Dynamic Pricing, Advance Sales, and Aggregate Demand Learning in Airlines," MPRA Paper 38509, University Library of Munich, Germany.
  5. 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.
  6. 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.
  7. 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.
  8. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  9. Escobari, Diego, 2009. "Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence," MPRA Paper 34857, University Library of Munich, Germany.
  10. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
  11. repec:dgr:uvatin:20110118 is not listed on IDEAS
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