Price Dispersion in the U.S. Airline Industry

This paper uses comprehensive information on individual airline's pricing strategies in order to explore price dispersion in the U.S. airline industry. Empirical results of price dispersion and average price are combined with quarterly observations for 2000 and 2005 to provide information on the sources of airlines' price dispersion. Given estimated price dispersion and average airfare, major carriers' pricing strategies were categorized in a stylized manner to improve understanding of types of pricing strategies. Using instrumental variables estimation, the results show that individual carriers play crucial roles in determining price dispersion, implying that their price discrimination strategies may influence variation in airfares. Pricing strategies varied across U.S. air carriers, with some adopting monopoly-type price discrimination and others adopting competitive-type price discrimination. Operating cost, demand and market power characteristics were important determinants of price dispersion. The effect of individual carriers on price dispersion depended on market conditions, and carriers may use different pricing strategies depending on conditions of segment markets.


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  • Accession Number: 01150824
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Feb 1 2010 11:01AM