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Is the Effect of Competition on Price Dispersion Nonmonotonic? Evidence from the U.S. Airline Industry

Author

Listed:
  • Mian Dai

    (Drexel University)

  • Qihong Liu

    (University of Oklahoma)

  • Konstantinos Serfes

    (Drexel University)

Abstract

We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a nonmonotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but with less price dispersion in competitive markets—an inverse-U relationship. Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Mian Dai & Qihong Liu & Konstantinos Serfes, 2014. "Is the Effect of Competition on Price Dispersion Nonmonotonic? Evidence from the U.S. Airline Industry," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 161-170, March.
    • Handle: RePEc:tpr:restat:v:96:y:2014:i:1:p:161-170
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    More about this item

    Keywords

    price dispersion; second-degree price discrimination; airline industry;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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