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Asymmetric Price Adjustments in Airlines

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  • Escobari, Diego

Abstract

This paper uses a unique daily time series data set to investigate the asymmetric response of airline prices to capacity costs driven by demand fluctuations. We use a Markov regime-switching model with time-varying transition probabilities to capture the time variation in the response. The results show strong evidence of asymmetric price adjustments: positive cost shifts have a large positive effect, while negative cost shifts have no effect. The asymmetry is also explained by summer travel, but not by the size of cost shifts. The findings show the importance of consumer heterogeneity and capacity constraints as a source of asymmetric responses.

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  • Escobari, Diego, 2012. "Asymmetric Price Adjustments in Airlines," MPRA Paper 42115, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42115
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    References listed on IDEAS

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    Cited by:

    1. Diego Escobari & Jim Lee, 2014. "Demand uncertainty and capacity utilization in airlines," Empirical Economics, Springer, vol. 47(1), pages 1-19, August.
    2. Wadud, Zia, 2015. "Imperfect reversibility of air transport demand: Effects of air fare, fuel prices and price transmission," Transportation Research Part A: Policy and Practice, Elsevier, vol. 72(C), pages 16-26.
    3. Wadud, Zia, 2014. "The asymmetric effects of income and fuel price on air transport demand," Transportation Research Part A: Policy and Practice, Elsevier, vol. 65(C), pages 92-102.
    4. repec:eee:jebusi:v:93:y:2017:i:c:p:15-28 is not listed on IDEAS
    5. Killins, Robert N. & Egly, Peter V. & Escobari, Diego, 2017. "The impact of oil shocks on the housing market: Evidence from Canada and U.S," Journal of Economics and Business, Elsevier, vol. 93(C), pages 15-28.
    6. repec:eee:touman:v:60:y:2017:i:c:p:379-389 is not listed on IDEAS

    More about this item

    Keywords

    Asymmetric pricing; Airlines; Regime switching; Capacity costs;

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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