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Investigating the effects of economies of scope on firms' pricing behavior: Empirical evidence from the US domestic airline industry

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  • Hofer, Christian
  • Eroglu, Cuneyt

Abstract

This study investigates to what extent cross-product (belly cargo) output affects (passenger ticket) prices in the US domestic airline industry. The empirical analysis indicates that greater cargo volumes generally result in lower air fares, presumably as a result of the airlines' realization of economies of scope. This magnitude of this price effect, however, depends on certain firm and route market characteristics. The findings of this study add to extant research on economies of scope, multi-product yield management and airline pricing and provide important insights for policy makers and airline managers alike.

Suggested Citation

  • Hofer, Christian & Eroglu, Cuneyt, 2010. "Investigating the effects of economies of scope on firms' pricing behavior: Empirical evidence from the US domestic airline industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(1), pages 109-119, January.
    • Handle: RePEc:eee:transe:v:46:y:2010:i:1:p:109-119
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    Citations

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    Cited by:

    1. Fan, Terence Ping Ching & Tan, Alex Tai Loong & Geng, Xuesong, 2014. "Rapid capacity expansions and failure: A trap for new airline entrants?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 61(C), pages 176-191.
    2. Yaghoub Abdi & Xiaoni Li & Xavier Càmara-Turull, 2023. "Firm value in the airline industry: perspectives on the impact of sustainability and Covid-19," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-24, December.
    3. Dresner, Martin & Eroglu, Cuneyt & Hofer, Christian & Mendez, Fabio & Tan, Kerry, 2015. "The impact of Gulf carrier competition on U.S. airlines," Transportation Research Part A: Policy and Practice, Elsevier, vol. 79(C), pages 31-41.
    4. Yuen, Andrew & Zhang, Anming & Hui, Yer Van & Leung, Lawrence C. & Fung, Michael, 2017. "Is developing air cargo airports in the hinterland the way of the future?," Journal of Air Transport Management, Elsevier, vol. 61(C), pages 15-25.
    5. Hofer, Christian & Kali, Raja & Mendez, Fabio, 2018. "Socio-economic mobility and air passenger demand in the U.S," Transportation Research Part A: Policy and Practice, Elsevier, vol. 112(C), pages 85-94.

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