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On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products

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  • Gayle, Philip
  • Wu, Chi-Yin

Abstract

Analysts of air travel markets, which include antitrust authorities, are interested in understanding the extent to which the presence of intermediate stop(s) products influences the pricing of nonstop products. This paper uses a structural econometric model to investigate the potential pricing interdependence between these two product types in domestic air travel markets. Counterfactual experiments using the estimated model suggest that in many (but far from a majority) markets the current prices of nonstop products are at least 5% lower than they would otherwise be owing to the presence of intermediate-stop(s) products.

Suggested Citation

  • Gayle, Philip & Wu, Chi-Yin, 2015. "On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products," MPRA Paper 64190, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:64190
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    References listed on IDEAS

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    1. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
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    3. Brueckner, Jan K. & Lee, Darin & Singer, Ethan S., 2013. "Airline competition and domestic US airfares: A comprehensivereappraisal," Economics of Transportation, Elsevier, vol. 2(1), pages 1-17.
    4. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
    5. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    6. Aguirregabiria, Victor & Ho, Chun-Yu, 2012. "A dynamic oligopoly game of the US airline industry: Estimation and policy experiments," Journal of Econometrics, Elsevier, vol. 168(1), pages 156-173.
    7. Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
    8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, March.
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    10. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
    11. Philip G. Gayle, 2007. "Airline Code-Share Alliances and Their Competitive Effects," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 781-819.
    12. Harumi Ito & Darin Lee, 2007. "Domestic Code Sharing, Alliances, and Airfares in the U.S. Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 355-380.
    13. Philip G. Gayle, 2008. "An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance," Journal of Law and Economics, University of Chicago Press, vol. 51(4), pages 743-766, November.
    14. Gayle, Philip G. & Brown, Dave, 2014. "Airline strategic alliances in overlapping markets: Should policymakers be concerned?," Economics of Transportation, Elsevier, vol. 3(4), pages 243-256.
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    Cited by:

    1. Pagoni, Ioanna & Psaraki-Kalouptsidi, Voula, 2016. "The impact of carbon emission fees on passenger demand and air fares: A game theoretic approach," Journal of Air Transport Management, Elsevier, vol. 55(C), pages 41-51.
    2. Philip G. Gayle & Xin Xie, 2018. "Entry Deterrence And Strategic Alliances," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1898-1924, July.

    More about this item

    Keywords

    Substitutability and Pricing Interdependence between Differentiated Air Travel Products; Discrete Choice Demand Model; Random Coefficients Logit;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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