The effects of competition on price dispersion in the airline industry: a panel analysis

Kristopher Gerardi and Adam Shapiro

No 07-7, Working Papers from Federal Reserve Bank of Boston

Abstract: This paper analyzes the effects of market structure on price dispersion in the airline industry, using panel data from 1993 through 2006. The results found in this paper contrast with those of Borenstein and Rose (1994), who found that price dispersion increases with competition. We find that competition has a negative effect on price dispersion, in line with the textbook treatment of price discrimination. Specifically, the effects of competition on price dispersion are most significant on routes that we identify as having consumers characterized by relatively heterogeneous elasticities of demand. On routes with a more homogenous customer base, the effects of competition on price discrimination are largely insignificant. We conclude from these results that competition acts to erode the ability of a carrier to price discriminate, resulting in reduced overall price dispersion.

Keywords: Airlines; Price discrimination (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt, nep-net and nep-ure
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Citations: View citations in EconPapers (11)

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