Working Paper: NBER ID: w3785
Authors: Severin Borenstein; Nancy L. Rose
Abstract: This papers analyzes dispersion in the prices that an airline charges to different customers on the same route. Such variation in airlines fares is substantial: the expected absolute difference in fares between two of an airline's passengers on a route averages thirty-six percent of the airline's average ticket price on the route. The pattern of price dispersion that we find does not seem to be explained solely by cost differences. Dispersion is higher on more competitive routes, possibly reflecting a pattern of discrimination against customers who are less willing to switch to alternative flights or airlines. We argue that the data support an explanation based on theories of price discrimination in monopolistically competitive industries.
Keywords: price dispersion; airline industry; price discrimination; competition
JEL Codes: L11; L93
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Competition (L13) | Price Dispersion (D49) |
| Market Density (D49) | Price Dispersion (D49) |
| Tourist Traffic (Z38) | Price Dispersion (D49) |