Sensitivity of Prices to Demand Shocks: A Natural Experiment in the San Francisco Bay Area
We analyze the impact of a freeway interchange collapse in the San Francisco Bay area on the difference in airfare quotes for travel into the area's main airports. The incident temporarily made Oakland airport a less attractive choice for traveling to San Francisco. Using a sample of fare quotes collected on-line we find that fares for travel into Oakland were 6-7 percent lower while the interchange was out of service. Our results imply that the demand-side shock was well absorbed by the supply side, and adjustment of prices and return to the status quo once the shock vanished was swift.
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