DYNAMIC ANALYSIS OF OLIGOPOLISTIC BEHAVIOR IN THE U.S. AIRLINE INDUSTRY

The recent history of the airline industry has exhibited relentless price wars of national proportion begun by failing airlines desperate to fill their planes. However, price reductions and sporadic discounting are often observed intermittently on scattered routes from time to time. If substantial discounts are offered, these episodes may also be classified as less publicized (or covert) price wars. An arbitrary rule is described that classifies the most traveled routes between the second quarter of 1990 and the third quarter of 1992 as experiencing or not experiencing a price war on the basis of distribution of prices. The classification scheme is helpful in characterizing market behavior during price wars and normal periods. The causes and effects of price wars are assessed, and special attention is given to the relationship between price wars and concentration. The analyses are conducted in the context of an economic theory that depicts price wars as a normal reaction to changing market conditions when a specific type of equilibrium characterizes as industry. The most profound result is that price wars do not increase market concentration as successfully as more cautious price reductions taken during normal periods.

• Record URL:
  • http://onlinepubs.trb.org/Onlinepubs/trr/1994/1428/1428-001.pdf
• Record URL:
  • https://scholar.google.com/scholar_lookup?title=DYNAMIC+ANALYSIS+OF+OLIGOPOLISTIC+BEHAVIOR+IN+THE+U.S.+AIRLINE+INDUSTRY&author=L.+Ross&publication_year=1994
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• Supplemental Notes:
  • This paper appears in Transportation Research Record No. 1428, Public-Sector Aviation Issues: Graduate Research Award Papers 1992-1993. Distribution, posting, or copying of this PDF is strictly prohibited without written permission of the Transportation Research Board of the National Academy of Sciences. Unless otherwise indicated, all materials in this PDF are copyrighted by the National Academy of Sciences. Copyright © National Academy of Sciences. All rights reserved
• Authors:
  • Ross, Leola B
• Publication Date: 1994

Language

• English

Media Info

• Features: Figures; References; Tables;
• Pagination: p. 1-7
• Monograph Title: Public-sector aviation issues: graduate research award papers 1992-1993
• Serial:
  • Transportation Research Record
  • Issue Number: 1428
  • Publisher: Transportation Research Board
  • ISSN: 0361-1981

Subject/Index Terms

• TRT Terms: Airlines; Behavior; Discount; Dynamic tests; Economics; Market research; Market structure; Theory
• Uncontrolled Terms: Dynamic analysis; Oligopoly; Price wars
• Geographic Terms: United States
• Old TRIS Terms: Economic theories; Market behavior; Market concentration
• Subject Areas: Aviation; Economics; Highways; Society;

Filing Info

• Accession Number: 00662894
• Record Type: Publication
• ISBN: 0309055067
• Files: TRIS, TRB
• Created Date: Jul 22 1994 12:00AM