Competition and price dispersion in the airline markets

Durba Chakrabarty and Levent Kutlu

Applied Economics, 2014, vol. 46, issue 28, 3421-3436

Abstract: We use two ticket-level data sets on one-way domestic flights for the US airlines to examine the potentially nonlinear relationship between price dispersion and three forms of competition: inter-firm, inter-flight and frequency competitions. The linear relationship is rejected at any conventional significance levels. In particular, there is an S-shaped relationship between market concentration and price dispersion. This can be a reason for the mixed results in the literature. Roughly speaking, the inter-flight and frequency competitions have opposite effects on price dispersion. Finally, in general, the size of aircraft has a positive effect on price. However, for very large aircraft, the relationship becomes negative.

Date: 2014
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DOI: 10.1080/00036846.2014.931919

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