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Price Dispersion in the U.S. Airline Industry

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  • Chi, Junwook
  • Koo, Won W.
  • Lim, Siew H.

Abstract

This paper explores price dispersion in the U.S. airline industry by highlighting differential individual carriers’ pricing strategies. Using instrumental variables (IV) estimation, the results show that individual carriers play crucial roles in determining price dispersion, implying that their price discrimination strategies may influence variation in airfares. Based on observed price dispersion and average price, we distinguished sources of price dispersion and found that the pricing strategies varied across U.S. air carriers. In 2005, for example, monopoly-type price discrimination was likely to result in price dispersion for Northwest, whereas competitive-type price discrimination was likely to lead to price dispersion for Delta.

Suggested Citation

  • Chi, Junwook & Koo, Won W. & Lim, Siew H., 2009. "Price Dispersion in the U.S. Airline Industry," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 48(3).
    • Handle: RePEc:ags:ndjtrf:207144
    DOI: 10.22004/ag.econ.207144
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    References listed on IDEAS

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    1. John D. Bitzan & Junwook Chi, 2006. "Higher Airfares to Small and Medium Sized Communities - Costly Service or Market Power?," Journal of Transport Economics and Policy, University of Bath, vol. 40(3), pages 473-501, September.
    2. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
    3. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    4. Harumi Ito & Darin Lee, 2003. "Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future," Working Papers 2003-12, Brown University, Department of Economics.
    5. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
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