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Fare dispersions in airline markets: A quantitative assessment of theoretical explanations

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  • Alderighi, Marco

Abstract

There are substantial fare dispersions in the airline industry. There are various theoretical explanations of this, but they only provide a qualitative justification of the phenomenon. This paper simulates the quantitative outcome of three popular models to evaluate their ability to generate substantial fare dispersions. We find that, in duopoly, the maximum fare dispersion that each model can generate is quite limited; and, even for the most favourable case, it is about one-third of the observed fare variability. Moving to more competitive market structures, however, some models generate better results.

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  • Alderighi, Marco, 2010. "Fare dispersions in airline markets: A quantitative assessment of theoretical explanations," Journal of Air Transport Management, Elsevier, vol. 16(3), pages 144-150.
    • Handle: RePEc:eee:jaitra:v:16:y:2010:i:3:p:144-150
    DOI: 10.1016/j.jairtraman.2009.07.004
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    3. Marco Alderighi & Marcella Nicolini & Claudio A. Piga, 2012. "Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline," Quaderni di Dipartimento 171, University of Pavia, Department of Economics and Quantitative Methods.
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    6. Marc Ivaldi & Milena J Petrova & Miguel Urdanoz, 2021. "Airline Cooperation Effects on Airfare Distribution: An Auction-model-based Approach," Post-Print hal-03455506, HAL.
    7. Domínguez-Menchero, J. Santos & Rivera, Javier & Torres-Manzanera, Emilio, 2014. "Optimal purchase timing in the airline market," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 137-143.
    8. Beria, Paolo & Bertolin, Alberto, 2019. "Evolving long-distance passenger services. Market concentration, fares and specialisation patterns in Italy," Research in Transportation Economics, Elsevier, vol. 74(C), pages 77-92.
    9. Ibrahim Mohammed & Basak Denizci Guillet & Rob Law, 2019. "Modeling dynamic price dispersion of hotel rooms in a spatially agglomerated tourism city for weekend and midweek stays," Tourism Economics, , vol. 25(8), pages 1245-1264, December.

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