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Does Price Matter? Price and Non-price Competition in the Airline Industry

Philip Gayle ()

No 163, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: This paper studies passengers' choice behavior in air travel. Products are defined as a unique combination of airline and flight itinerary while markets are defined as a directional round-trip air travel between an origin and a destination city. A structural econometric model is used to investigate the relative importance of price (airfare) and non-price product characteristics in explaining passengers' choice of these differentiated products. The results suggest that, on average, prices may not be as important as we think in explaining passengers' choice behavior among alternative products. Non-price characteristics which may include convenience of flight schedules, frequent flyer programs, the quality of in-flight service, among other things, seem to be much more important in explaining passengers' choice behavior. As such, the results have implications for the focus of antitrust policies in the airline industry when assessing the impact of mergers, alliances, or other business decisions of airlines

Keywords: Discrete Choice; Mixed Logit; Airlines; Hub and Spoke Network; Frequent Flyer Programs (search for similar items in EconPapers)
JEL-codes: C1 C2 L93 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-com, nep-dcm and nep-ind
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