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Airline choice, switching costs and frequent flyer programmes

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  • Fredrik Carlsson
  • Åsa Lofgren

Abstract

Switching costs are costs that customers face when switching from one firm to another. In markets such as the airline market where repeated purchases are common, switching costs may be substantial. In this paper, the switching costs are estimated for domestic airline routes in Sweden between 1992 and 2002. In addition, the determinants of these switching costs are tested for; in particular, to what extent factors such as frequent flyer programmes and flag carriers have an effect on switching costs. A substantial switching cost is found. Although a large part of this calculated switching cost can be attributed to perceived quality differences, it is also found that frequent flyer programmes contribute a non-negligible part of the switching cost. The paper ends with a brief discussion on the welfare consequences of switching costs, where the connection between habit formation and switching costs is discussed.

Suggested Citation

  • Fredrik Carlsson & Åsa Lofgren, 2006. "Airline choice, switching costs and frequent flyer programmes," Applied Economics, Taylor & Francis Journals, vol. 38(13), pages 1469-1475.
    • Handle: RePEc:taf:applec:v:38:y:2006:i:13:p:1469-1475
    DOI: 10.1080/00036840500419608
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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