Consumer Heterogeneity and Markups over the Business Cycle: Evidence from the Airline Industry

Marco Cornia, Kristopher Gerardi and Adam Shapiro

BEA Working Papers from Bureau of Economic Analysis

Abstract: We analyze price dispersion in the airline industry in order to determine the effects of the business cycle on markup variations. We find that the cycle can affect the degree to which airlines can price discriminate between different consumer types, ultimately affecting the degree of price dispersion. Performing a fixed-effects panel analysis on 17 years of data covering two business cycles, we find that price dispersion is highly procyclical. Estimates show that a rise in the output gap of one percentage point increases the interquartile range by 1.6 percent. These results suggest that markups move procyclically in the airline industry, such that during booms in the cycle, the firm can significantly raise the markup charged to those with high willingness to pay. Our analysis suggests that this impact on the firm’s ability to price discriminate imposes extra profit risk to the firm over and above cost variations.

JEL-codes: E6 (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-bec, nep-mac and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://apps.bea.gov/papers/pdf/consumer_heterogen ... e_business_cycle.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bea:wpaper:0056

Access Statistics for this paper

More papers in BEA Working Papers from Bureau of Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Andrea Batch ().