IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/113960.html
   My bibliography  Save this paper

Discount opportunities in hub-and-spoke networks: The determinants of hidden-city ticketing

Author

Listed:
  • Luttmann, Alexander
  • Gaggero, Alberto A

Abstract

We offer a comprehensive empirical study on hidden-city ticketing (HCT), a pricing phenomenon in the airline industry that occurs when the fare for a nonstop trip from A to B is more expensive than a connecting trip from A to B and B to C. Exploiting a unique panel of over 772 thousand fares for flights departing between October 1st, 2019 and February 29th, 2020, we find that HCT depends on route competition (both on A-B and A-C routes), largely occurs in the last week to departure, and primarily occurs on carriers that operate large hub-and-spoke networks (e.g., American, Delta, and United).

Suggested Citation

  • Luttmann, Alexander & Gaggero, Alberto A, 2022. "Discount opportunities in hub-and-spoke networks: The determinants of hidden-city ticketing," MPRA Paper 113960, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:113960
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/113960/1/MPRA_paper_113960.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/116577/9/MPRA_paper_116577.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Escobari, Diego & Jindapon, Paan, 2014. "Price discrimination through refund contracts in airlines," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 1-8.
    2. Joanna Stavins, 2001. "Price Discrimination in the Airline Market: The Effect of Market Concentration," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 200-202, February.
    3. Zizhuo Wang & Yinyu Ye, 2016. "Hidden-City Ticketing: The Cause and Impact," Transportation Science, INFORMS, vol. 50(1), pages 288-305, February.
    4. Oded Koenigsberg & Eitan Muller & Naufel Vilcassim, 2008. "easyJet® pricing strategy: Should low-fare airlines offer last-minute deals?," Quantitative Marketing and Economics (QME), Springer, vol. 6(3), pages 279-297, September.
    5. Jan K. Brueckner & Nichola J. Dyer & Pablo T. Spiller, 1992. "Fare Determination in Airline Hub-and-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 309-333, Autumn.
    6. Skorupski, Jacek & Wierzbińska, Magdalena, 2015. "A method to evaluate the time of waiting for a late passenger," Journal of Air Transport Management, Elsevier, vol. 47(C), pages 79-89.
    7. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter‐Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, January.
    8. Bilotkach, Volodymyr & Gaggero, Alberto A. & Piga, Claudio A., 2015. "Airline pricing under different market conditions: Evidence from European Low-Cost Carriers," Tourism Management, Elsevier, vol. 47(C), pages 152-163.
    9. Luttmann, Alexander, 2019. "Are passengers compensated for incurring an airport layover? Estimating the value of layover time in the U.S. airline industry," Economics of Transportation, Elsevier, vol. 17(C), pages 1-13.
    10. Luttmann, Alexander, 2019. "Evidence of directional price discrimination in the U.S. airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 291-329.
    11. Diego Escobari & Nicholas G. Rupp & Joseph Meskey, 2019. "An Analysis of Dynamic Price Discrimination in Airlines," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 639-662, January.
    12. Puller, Steven L. & Taylor, Lisa M., 2012. "Price discrimination by day-of-week of purchase: Evidence from the U.S. airline industry," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 801-812.
    13. Gaggero, Alberto A. & Piga, Claudio A., 2010. "Airline competition in the British Isles," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(2), pages 270-279, March.
    14. Federico Ciliberto & Jonathan W. Williams, 2010. "Limited Access to Airport Facilities and Market Power in the Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 467-495.
    15. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    16. Sun, Xiaoqian & Wandelt, Sebastian & Zhang, Anming, 2023. "Price discrimination through hidden city options? A data-driven study on the extent and evolution of skiplaggability in the global aviation system," Journal of Air Transport Management, Elsevier, vol. 108(C).
    17. Diego Escobari, 2011. "Frequent flyer programs premium and the role of airport dominance," Applied Economics Letters, Taylor & Francis Journals, vol. 18(16), pages 1565-1569.
    18. Diego Escobari, 2012. "Dynamic Pricing, Advance Sales and Aggregate Demand Learning in Airlines," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 697-724, December.
    19. Brueckner, Jan K. & Lee, Darin & Singer, Ethan S., 2013. "Airline competition and domestic US airfares: A comprehensivereappraisal," Economics of Transportation, Elsevier, vol. 2(1), pages 1-17.
    20. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
    21. Kang, Yicheng & Liao, Sha & Jiang, Changmin & D’Alfonso, Tiziana, 2022. "Synthetic control methods for policy analysis: Evaluating the effect of the European Emission Trading System on aviation supply," Transportation Research Part A: Policy and Practice, Elsevier, vol. 162(C), pages 236-252.
    22. Alberto A. Gaggero & Claudio A. Piga, 2011. "Airline Market Power and Intertemporal Price Dispersion," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 552-577, December.
    23. Volodymyr Bilotkach & Vivek Pai, 2016. "Hubs versus Airport Dominance," Transportation Science, INFORMS, vol. 50(1), pages 166-179, February.
    24. James D. Dana Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
    25. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
    26. Oh, Jaelynn & Huh, Woonghee Tim, 2022. "Hidden city travel and its impact on airfare: The case with competing airlines," Transportation Research Part B: Methodological, Elsevier, vol. 156(C), pages 101-109.
    27. Gaggero, Alberto A. & Ogrzewalla, Lukas & Bubalo, Branko, 2019. "Pricing of the long-distance bus service in Europe: The case of Flixbus," Economics of Transportation, Elsevier, vol. 19(C), pages 1-1.
    28. Aslani, Shirin & Modarres, Mohammad & Sibdari, Soheil, 2014. "On the fairness of airlines’ ticket pricing as a result of revenue management techniques," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 56-64.
    29. Kevin R. Williams, 2022. "The Welfare Effects of Dynamic Pricing: Evidence From Airline Markets," Econometrica, Econometric Society, vol. 90(2), pages 831-858, March.
    30. Mara Lederman, 2008. "Are Frequent‐Flyer Programs a Cause of the “Hub Premium”?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 35-66, March.
    31. 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.
    32. Luttmann, Alexander & Gaggero, Alberto A, 2022. "How does COVID-19 affect intertemporal price dispersion? Evidence from the airline industry," MPRA Paper 111797, University Library of Munich, Germany.
    33. Kristopher S. Gerardi & Adam Hale Shapiro, 2009. "Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 1-37, February.
    34. Bharill, Rohit & Rangaraj, Narayan, 2008. "Revenue management in railway operations: A study of the Rajdhani Express, Indian Railways," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(9), pages 1195-1207, November.
    35. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter.
    36. Luttmann, Alexander & Gaggero, Alberto A, 2020. "Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry," MPRA Paper 104863, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brad Shrago, 2024. "The Spirit Effect: Ultra-Low Cost Carriers and Fare Dispersion in the U.S. Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(4), pages 549-579, June.
    2. Sun, Xiaoqian & Wandelt, Sebastian & Zhang, Anming, 2023. "Price discrimination through hidden city options? A data-driven study on the extent and evolution of skiplaggability in the global aviation system," Journal of Air Transport Management, Elsevier, vol. 108(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luttmann, Alexander & Gaggero, Alberto A, 2020. "Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry," MPRA Paper 104863, University Library of Munich, Germany.
    2. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2022. "Hidden prices with fixed inventory: Evidence from the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 157(C), pages 42-61.
    3. Morlotti, Chiara & Redondi, Renato, 2023. "The impact of COVID-19 on airlines’ price curves," Journal of Air Transport Management, Elsevier, vol. 107(C).
    4. Luttmann, Alexander & Ladd, Daniel, 2023. "Loyalty rewards and redemption behavior: Stylized facts for the U.S. airline industry," MPRA Paper 119214, University Library of Munich, Germany.
    5. Luttmann, Alexander & Gaggero, Alberto A, 2022. "How does COVID-19 affect intertemporal price dispersion? Evidence from the airline industry," MPRA Paper 111797, University Library of Munich, Germany.
    6. Lewis, Matthew S., 2021. "Identifying airline price discrimination and the effect of competition," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    7. Luttmann, Alexander, 2019. "Evidence of directional price discrimination in the U.S. airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 291-329.
    8. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter‐Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, January.
    9. Siegert, Caspar & Ulbricht, Robert, 2020. "Dynamic oligopoly pricing: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 71(C).
    10. Diego Escobari & Nicholas G. Rupp & Joseph Meskey, 2019. "An Analysis of Dynamic Price Discrimination in Airlines," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 639-662, January.
    11. Escobari, Diego & Rupp, Nicholas & Meskey, Joseph, 2018. "Dynamic Price Discrimination in Airlines," MPRA Paper 88078, University Library of Munich, Germany.
    12. Diego Escobari & Manuel A. Hernandez, 2019. "Separating Between Unobserved Consumer Types: Evidence From Airlines," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 1215-1230, April.
    13. Bergantino, Angela Stefania & Capozza, Claudia, 2015. "One price for all? Price discrimination and market captivity: Evidence from the Italian city-pair markets," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 231-244.
    14. Chengyan Gu, 2023. "Market segmentation and dynamic price discrimination in the U.S. airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(5), pages 338-361, October.
    15. Yannis Kerkemezos & Bas Karreman, 2020. "On the Benefits of Being Alone: Scheduling Changes, Intensity of Competition and Dynamic Airline Pricing," Tinbergen Institute Discussion Papers 20-042/VII, Tinbergen Institute.
    16. Myongjin Kim & Leilei Shen & Qi Ge, 2023. "Does Competition Increase or Decrease Price Dispersion? Insights from One‐Way vs. Round‐Trip Airfares," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(2), pages 435-455, April.
    17. Bergantino, Angela Stefania & Capozza, Claudia, 2014. "One price for all? The role of market captivity as a price discrimination device: evidence from the Italia city-pair markets," Working Papers 1401, SIET Società Italiana di Economia dei Trasporti e della Logistica.
    18. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2015. "The effect of code-share agreements on the temporal profile of airline fares," Transportation Research Part A: Policy and Practice, Elsevier, vol. 79(C), pages 42-54.
    19. Manuel A. Hernandez & Steven N. Wiggins, 2014. "Nonlinear Pricing Strategies And Competitive Conditions In The Airline Industry," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 539-561, April.
    20. Varella, Rafael R. & Frazão, Jessica & Oliveira, Alessandro V.M., 2017. "Dynamic pricing and market segmentation responses to low-cost carrier entry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 98(C), pages 151-170.

    More about this item

    Keywords

    advance-purchase; airline pricing; competition; hidden-city ticketing; price discrimination.;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:113960. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.