Airline Pricing Behavior Under Limited Inter‐modal Competition

Abstract

This paper empirically analyzes airline pricing for short-haul flights in contexts with no credible threat of inter-modal competition. To this end, we explore the southern Italian market since it is less accessible by other transport modes and thus fares are the direct outcome of air-related competition. We show, in fact, that market power matters, depending on the level of intra-modal competition, and that airlines apply differentiated mark-ups. Besides, consistent with the implementation of inter-temporal price discrimination (IPD), we find a non-monotonic inter-temporal profile of fares with a turning point included in the interval of the 43rd to 45th days before departure. Finally, we provide evidence that in more competitive markets, airlines are more likely to engage in IPD. (JEL L11, L13, L93)

Pricing of Regional Airline Services in Australia and New Zealand, 2011–2015

“…In November 2014, Air New Zealand announced that it would begin decommissioning all its Beech 1900 aircraft. On some routes, these would be replaced by fifty-seater turboprops, 8 We note the recent paper by Bergantino and Capozza (2015), which uses a similar data and modelling approach, and obtains quite similar results to ours, for a sample of prices observed on ten Southern Italy routes. 9 Two other mid-sized Australian cities -Geelong and Wollongongare within 100 km of Melbourne and Sydney, and do not have scheduled air service.…”

“… We note the recent paper by Bergantino and Capozza (), which uses a similar data and modelling approach, and obtains quite similar results to ours, for a sample of prices observed on ten Southern Italy routes. …”

Pricing strategies: who leads and who follows in the air and rail passenger markets in Italy

“…Early papers by Borenstein and Rose (1994) and Stavins (2001) on the US industry find strong empirical evidences about the use of price discrimination strategies by airlines, particularly in the most competitive markets. Recent works exploring the inter-temporal price discrimination show that fares follow a non-monotonic path over the booking day (Alderighi andCapozza, 2015a). Also, Gaggero and Piga (2011) find that inter-temporal price discrimination is applied more in less competitive markets by airlines on Ireland-UK routes, whereas Bergantino and Capozza (2015a) reach the opposite result on Italian domestic routes.…”

“…Recent works exploring the inter-temporal price discrimination show that fares follow a non-monotonic path over the booking day (Alderighi andCapozza, 2015a). Also, Gaggero and Piga (2011) find that inter-temporal price discrimination is applied more in less competitive markets by airlines on Ireland-UK routes, whereas Bergantino and Capozza (2015a) reach the opposite result on Italian domestic routes.…”

An integrated Markov decision process and nested logit consumer response model of air ticket pricing

“…Moreover, people may give up the travel option when none of the travel modes satisfies their needs (Zhang and Yan 2006). An extra choice option defined as 'non-travel' needs to be considered (Bergantino and Capozza 2015). Therefore, we propose an integrated modeling framework in order to formulate such a process by incorporating the air ticket purchasing behavior into the ticket pricing model.…”