Competition and Price Dispersion in the U.S. Airline Industry
Author(s)
Borenstein, Severin; Rose, Nancy L
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We study dispersion in the prices an airline charges to different passengers on the same route. This variation in fares is substantial: the expected absolute difference in fares between two passengers on a route is 36 percent of the airline's average ticket price. The pattern of observed price dispersion cannot easily be explained by cost differences alone. Dispersion increases on routes with more competition or lower flight density, consistent with discrimination based on customers' willingness to switch to alternative airlines or flights. We argue that the data support models of price discrimination in monopolistically competitive markets.
Date issued
1994-08Department
Massachusetts Institute of Technology. Department of Economics; Massachusetts Institute of Technology. Department of HumanitiesJournal
Journal of Political Economy
Publisher
University of Chicago Press
Citation
Borenstein, Severin, and Rose, Nancy L. “Competition and Price Dispersion in the U.S. Airline Industry.” Journal of Political Economy 102, 4 (August 1994): 653–683 © 1994 University of Chicago
Version: Final published version
ISSN
0022-3808
1537-534X