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Sensitivity of Prices to Demand Shocks: A Natural Experiment in the San Francisco Bay Area

Author

Listed:
  • Volodymyr Bilotkach

    () (University of California-Irvine)

  • Yuriy Gorodnichenko

    () (University of California-Berkeley)

  • Oleksandr Talavera

    () (School of Economics, University of East Anglia)

Abstract

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.

Suggested Citation

  • Volodymyr Bilotkach & Yuriy Gorodnichenko & Oleksandr Talavera, 2010. "Sensitivity of Prices to Demand Shocks: A Natural Experiment in the San Francisco Bay Area," University of East Anglia Applied and Financial Economics Working Paper Series 004, School of Economics, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:aepppr:2010_4
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    References listed on IDEAS

    as
    1. Escobari, Diego & Jindapon, Paan, 2014. "Price discrimination through refund contracts in airlines," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 1-8.
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    Cited by:

    1. Nesset, Erik & Helgesen, Øyvind, 2014. "Effects of switching costs on customer attitude loyalty to an airport in a multi-airport region," Transportation Research Part A: Policy and Practice, Elsevier, vol. 67(C), pages 240-253.
    2. repec:eee:transa:v:103:y:2017:i:c:p:198-210 is not listed on IDEAS
    3. repec:eee:regeco:v:66:y:2017:i:c:p:74-90 is not listed on IDEAS
    4. Escobari, Diego, 2017. "Airport, airline and departure time choice and substitution patterns: An empirical analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 198-210.

    More about this item

    Keywords

    natural experiment; price stability; demand shocks; congestion;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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