IDEAS home Printed from https://ideas.repec.org/a/eee/jaitra/v84y2020ics0969699719304284.html
   My bibliography  Save this article

Price and marginal cost effects of on-time performance: Evidence from the US airline industry

Author

Listed:
  • Yimga, Jules

Abstract

We examine the impact of flight delay on market power in the U.S. airline industry. Consistent with the literature, our estimation results confirm that flight delays are associated with negative consumer welfare effects. Most importantly, we find that poor on-time performance negatively impacts product markup—proxy for market power. Furthermore, we are able to decompose these markup effects into price and marginal cost effects and evidence suggests that the source of these negative markup effects is primarily driven by negative price responses.

Suggested Citation

  • Yimga, Jules, 2020. "Price and marginal cost effects of on-time performance: Evidence from the US airline industry," Journal of Air Transport Management, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:jaitra:v:84:y:2020:i:c:s0969699719304284
    DOI: 10.1016/j.jairtraman.2020.101769
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969699719304284
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jairtraman.2020.101769?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zou, Bo & Hansen, Mark, 2012. "Impact of operational performance on air carrier cost structure: Evidence from US airlines," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 1032-1048.
    2. Berry, Steven T, 1990. "Airport Presence as Product Differentiation," American Economic Review, American Economic Association, vol. 80(2), pages 394-399, May.
    3. Philip G. Gayle, 2007. "Airline Code-Share Alliances and Their Competitive Effects," Journal of Law and Economics, University of Chicago Press, vol. 50(4), pages 781-819.
    4. Andrew Cook & Graham Tanner & Adrian Lawes, 2012. "The Hidden Cost of Airline Unpunctuality," Journal of Transport Economics and Policy, University of Bath, vol. 46(2), pages 157-173, May.
    5. Suzuki, Yoshinori, 2000. "The relationship between on-time performance and airline market share: a new approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 36(2), pages 139-154, June.
    6. 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(2), pages 355-380.
    7. Forbes, Silke J., 2008. "The effect of air traffic delays on airline prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1218-1232, September.
    8. Michael Mazzeo, 2003. "Competition and Service Quality in the U.S. Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(4), pages 275-296, June.
    9. Jeffrey T. Prince & Daniel H. Simon, 2017. "The Impact of Mergers on Quality Provision: Evidence from the Airline Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 65(2), pages 336-362, June.
    10. Philip G. Gayle & Xin Xie, 2018. "Entry Deterrence And Strategic Alliances," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1898-1924, July.
    11. Zou, Li & Chen, Xueqian, 2017. "The effect of code-sharing alliances on airline profitability," Journal of Air Transport Management, Elsevier, vol. 58(C), pages 50-57.
    12. Bubalo, Branko & Gaggero, Alberto A., 2015. "Low-cost carrier competition and airline service quality in Europe," Transport Policy, Elsevier, vol. 43(C), pages 23-31.
    13. Yimga, Jules, 2018. "Domestic code-sharing agreements and on-time performance: Evidence from the US airline industry," Transport Policy, Elsevier, vol. 71(C), pages 14-27.
    14. 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.
    15. Nevo, Aviv & Rossi, Federico, 2008. "An approach for extending dynamic models to settings with multi-product firms," Economics Letters, Elsevier, vol. 100(1), pages 49-52, July.
    16. Steven, Adams B. & Yazdi, Amirhossein Alamdar & Dresner, Martin, 2016. "Mergers and service quality in the airline industry: A silver lining for air travelers?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 1-13.
    17. Forbes, Silke J. & Lederman, Mara & Wither, Michael J., 2019. "Quality disclosure when firms set their own quality targets," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 228-250.
    18. Macieira, João, 2015. "Introducing consumer heterogeneity in dynamic games with multi-product firms and differentiated product demand," Economics Letters, Elsevier, vol. 129(C), pages 62-65.
    19. Greenfield, Daniel, 2014. "Competition and service quality: New evidence from the airline industry," Economics of Transportation, Elsevier, vol. 3(1), pages 80-89.
    20. 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.
    21. Gayle, Philip G. & Yimga, Jules O., 2018. "How much do consumers really value air travel on-time performance, and to what extent are airlines motivated to improve their on-time performance?," Economics of Transportation, Elsevier, vol. 14(C), pages 31-41.
    22. Philip G. Gayle, 2013. "On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 244-273, November.
    23. Yimga, Jules, 2017. "Airline on-time performance and its effects on consumer choice behavior," Research in Transportation Economics, Elsevier, vol. 66(C), pages 12-25.
    24. Kang Hua Cao & Betty Krier & Chia-Mei Liu & Brian McNamara & Jerrod Sharpe, 2017. "The Nonlinear Effects of Market Structure on Service Quality: Evidence from the U.S. Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(1), pages 43-73, August.
    25. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    26. Yimga, Jules & Gorjidooz, Javad, 2019. "Airline schedule padding and consumer choice behavior," Journal of Air Transport Management, Elsevier, vol. 78(C), pages 71-79.
    27. Milind Sohoni & Yu-Ching Lee & Diego Klabjan, 2011. "Robust Airline Scheduling Under Block-Time Uncertainty," Transportation Science, INFORMS, vol. 45(4), pages 451-464, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lesgourgues, Augustin & Malavolti, Estelle, 2023. "Social cost of airline delays: Assessment by the use of revenue management data," Transportation Research Part A: Policy and Practice, Elsevier, vol. 170(C).
    2. Alessandro V. M. Oliveira & Bruno F. Oliveira & Moises D. Vassallo, 2024. "Airport service quality perception and flight delays: examining the influence of psychosituational latent traits of respondents in passenger satisfaction surveys," Papers 2401.02139, arXiv.org.
    3. Sergi, S. Bruno & D’Aleo, Vittorio & Arbolino, Roberta & Carlucci, Fabio & Barilla, David & Ioppolo, Giuseppe, 2020. "Evaluation of the Italian transport infrastructures: A technical and economic efficiency analysis," Land Use Policy, Elsevier, vol. 99(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yimga, Jules & Gorjidooz, Javad, 2019. "Airline schedule padding and consumer choice behavior," Journal of Air Transport Management, Elsevier, vol. 78(C), pages 71-79.
    2. Yimga, Jules, 2022. "Code-sharing agreements and path quality in the US airline industry," Transport Policy, Elsevier, vol. 116(C), pages 369-385.
    3. Chen, Yongmin & Gayle, Philip G., 2019. "Mergers and product quality: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 96-135.
    4. Gayle, Philip G. & Yimga, Jules O., 2018. "How much do consumers really value air travel on-time performance, and to what extent are airlines motivated to improve their on-time performance?," Economics of Transportation, Elsevier, vol. 14(C), pages 31-41.
    5. Yimga, Jules, 2018. "Domestic code-sharing agreements and on-time performance: Evidence from the US airline industry," Transport Policy, Elsevier, vol. 71(C), pages 14-27.
    6. Roucolle, Chantal & Seregina, Tatiana & Urdanoz, Miguel, 2020. "Network development and excess travel time," Transport Policy, Elsevier, vol. 94(C), pages 139-152.
    7. Ren, Junqiushi, 2023. "Financial conditions and incumbent quality responses to entry: Evidence from airlines' on-time performance," Journal of Air Transport Management, Elsevier, vol. 107(C).
    8. Gil, Ricard & Kim, Myongjin, 2021. "Does competition increase quality? Evidence from the US airline industry," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    9. Federico Ciliberto & Emily E. Cook & Jonathan W. Williams, 2019. "Network Structure and Consolidation in the U.S. Airline Industry, 1990–2015," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 3-36, February.
    10. Arora, Swapan Deep & Mathur, Sameer, 2020. "Effect of airline choice and temporality on flight delays," Journal of Air Transport Management, Elsevier, vol. 86(C).
    11. 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.
    12. Bet, Germán, 2021. "Product specification under a threat of entry: Evidence from Airlines’ departure times," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    13. Gayle Philip G. & Wu Chi-Yin, 2014. "On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products," Review of Network Economics, De Gruyter, vol. 13(3), pages 355-395, September.
    14. Yimga, Jules, 2017. "Airline on-time performance and its effects on consumer choice behavior," Research in Transportation Economics, Elsevier, vol. 66(C), pages 12-25.
    15. Philip G. Gayle & Xin Xie, 2018. "Entry Deterrence And Strategic Alliances," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1898-1924, July.
    16. Gayle, Philip G. & Xie, Xin, 2019. "Firms’ markup, cost, and price changes when policymakers permit collusion: Does antitrust immunity matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 680-707.
    17. Brueckner, Jan K. & Czerny, Achim I. & Gaggero, Alberto A., 2021. "Airline mitigation of propagated delays via schedule buffers: Theory and empirics," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 150(C).
    18. Calzada, Joan & Fageda, Xavier, 2023. "Airport dominance, route network design and flight delays," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 170(C).
    19. Le Huubinh B. & Yimga Jules, 2019. "Market Power and Marginal Cost Effects in Competing Markets: Evidence from Airline Mergers," Review of Network Economics, De Gruyter, vol. 18(2), pages 63-108, June.
    20. Yimga, Jules O., 2017. "Airline code-sharing and its effects on on-time performance," Journal of Air Transport Management, Elsevier, vol. 58(C), pages 76-90.

    More about this item

    Keywords

    Airlines; Market power; Flight delay; Consumer welfare; Nested logit;
    All these keywords.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jaitra:v:84:y:2020:i:c:s0969699719304284. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/journal-of-air-transport-management/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.