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Analysts of air travel markets, which include antitrust authorities, are interested in understanding the extent to which the presence of intermediate stop(s) products influences the pricing of nonstop products. This paper uses a structural econometric model to investigate the potential pricing interdependence between these two product types in domestic air travel markets. Counterfactual experiments using the estimated model suggest that in many (but far from a majority) markets the current prices of nonstop products are at least 5% lower than they would otherwise be owing to the presence of intermediate-stop(s) products. Keywords: Substitutability and Pricing Interdependence between Differentiated Air TravelProducts; Discrete Choice Demand Model. JEL Classification codes: L13, L40, L93Acknowledgement: We thank the editor, Julian Wright, two anonymous referees, Philippe Belley, Leilei Shen, Dong Li, Tian Xia, Kate Ho, and Yang-Ming Chang for very helpful comments and suggestions. Any remaining errors are our own.

Legacy carriers operate hub-and-spoke networks because they believe that such networks offer demand and cost advantages, which allow the hub carrier to charge a higher price. However, some empirical studies have found that the hub premium has declined in recent years. This study examines hub-and-spoke networks to assess the change in the hub premium over time. It uses a structural model to jointly estimate the demand and supply parameters. Then, a counterfactual exercise is carried out to capture the impact of low-cost carriers (LCCs) on hub carriers' premiums under different economic conditions. The major finding is that, on average, consumers respond differently when facing a price change by a legacy carrier and by an LCC. However, this price sensitivity reduces in the later years of the study period. Further, we show that legacy carriers dominated airfares in the late 1990s. Nevertheless, the growing expansion of LCCs is significantly harming the economies of density of legacy carriers.