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Refundability and Price: Empirical Analysis on the Airline Industry

Author

Listed:
  • Seongman Moon

    (Universidad Carlos III de Madrid)

  • Makoto Watanabe

    (Universidad Carlos III de Madrid)

Abstract

This paper provides new evidence on price dispersion in the US airline industry. Using the observed fare differences between refundable and non-refundable tickets, we first document evidence on the prices passengers pay for a refund option. We find that the factors related to the value of refund option and customers¡¯ individual demand uncertainty have a significant effect on the relative refund fares. This finding is robust for various market structures. Further, taking into account the variations of the relative refund fares, we investigate the effects of market structure on price dispersion.

Suggested Citation

  • Seongman Moon & Makoto Watanabe, 2011. "Refundability and Price: Empirical Analysis on the Airline Industry," Working Papers 1107, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    • Handle: RePEc:sgo:wpaper:1107
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    References listed on IDEAS

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    13. Nocke, Volker & Peitz, Martin & Rosar, Frank, 2011. "Advance-purchase discounts as a price discrimination device," Journal of Economic Theory, Elsevier, vol. 146(1), pages 141-162, January.
    14. 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, February.
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    Cited by:

    1. Marc Möller & Makoto Watanabe, 2016. "Competition in the presence of individual demand uncertainty," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 273-292, May.

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    More about this item

    Keywords

    Price discrimination; Refundability; Competition; Airline industry;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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