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Measuring the impact of scheduling overlap and market structure on prices: Evidence from the airline industry

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  • Mantin, Benny
  • Gillen, David
  • Delibasi, Tuba Toru

Abstract

Measuring the degree of competition in markets is important for setting competition and regulatory policies as well as developing management strategies. Commonly used structural indices, such as the HHI, overlook the way in which firms compete and, hence, set their prices in markets. We propose a family of horizontal differentiation measures, which encapsulates firms’ portfolio of products as well as the degree of overlap and substitution between competing services. We term this family of measures Schedule Differentiation Metric or SDM. Applied to aviation markets, we illustrate one instance of SDM and demonstrate the significant importance of SDM in explaining price levels and structure. The information captured by SDM also explains fares across fare percentiles depending on the competing airlines’ business models.

Suggested Citation

  • Mantin, Benny & Gillen, David & Delibasi, Tuba Toru, 2024. "Measuring the impact of scheduling overlap and market structure on prices: Evidence from the airline industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 183(C).
    • Handle: RePEc:eee:transa:v:183:y:2024:i:c:s0965856424000922
    DOI: 10.1016/j.tra.2024.104044
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    Keywords

    Airlines; Competition; HHI; Flight frequency; Product differentiation;
    All these keywords.

    JEL classification:

    • 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
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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