Competition and Price Dispersion in the U.S. Airline Industry

Borenstein, Severin; Rose, Nancy L.

doi:10.1086/261950

Cited by 576 publications

(605 citation statements)

References 10 publications

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“…This is because of the lack of substitute transport on long-distance routes (Brons, et al, 2002). (Borenstein & Rose, 1994). Similar conclusions on the correlations between competition and price dispersion were drawn by Stavins (2001).…”

supporting

confidence: 60%

The Influence of Purchase Date and Flight Duration over the Dispersion of Airline Ticket Prices

Szopiński

Nowacki

2015

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supporting

confidence: 60%

The Influence of Purchase Date and Flight Duration over the Dispersion of Airline Ticket Prices

Szopiński

Nowacki

2015

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“…9 There are also a few papers that examine the link between competition and the similar topic of price dispersion. Borenstein and Rose (1994) find 6 Another way to gain intuition about why competition can either increase or decrease the variance in consumers' willingness-to-pay is to note that when competitors enter into a market, theory dictates that any particular consumer's willingness-to-pay for the incumbent's product should decrease. However, this decrease can be either larger or smaller for customers that initially have a high willingness-to-pay relative to the size of the decrease among consumers that initially have a low willingness-to-pay.…”

Section: Previous Literaturementioning

confidence: 99%

Competition and price discrimination in the market for mailing lists

2009

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This paper examines whether mailing list sellers, when faced with additional competitors, are more likely to try to segment consumers by offering additional choices at different prices (second-degree price discrimination) and/or offering different prices to readily identifiable groups of consumers (third-degree price discrimination). We utilize a dataset that includes information about all consumer response lists derived from mail order buyers (i.e. lists derived from catalogs) available for rental in 1997 and 2002. Our results indicate that increased competition leads to an increased propensity to price discriminate along each of the dimensions we investigate. These results hold for both second-degree and third-degree price discrimination. Further, list owners offer menus with more choices in more competitive markets. These

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“…Publications that consider the interactions among economic forces, strategic airline market entry decisions, and airline schedules include the network design models of Lederer and Nambimamdom (1999), Dobson and Lederer (1994), and the empirical work by Borenstein and Rose (1994). Another body of research focuses on the airlines' scheduling decisions under competition using variants of the spatial model developed by Hotelling (1929).…”

Section: Related Literaturementioning

confidence: 99%

Revenue Management Games: Horizontal and Vertical Competition

2005

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A well-studied problem in the literature on airline revenue (or yield) management is the optimal allocation of seat inventory among fare classes, given a demand distribution for each class. In practice, the seat allocation decisions of one airline affect the passenger demands for seats on other airlines. In this paper, we examine the seat inventory control problem under both horizontal competition (two airlines compete for passengers on the same flight leg) and vertical competition (different airlines fly different legs on a multileg itinerary). Such vertical competition can be the outcome of a code-sharing agreement between airlines, because each airline sells seats on the partner airlines' flights but the airlines are unwilling, or unable, to coordinate yield management decisions. We provide a general sufficient condition under which a pure-strategy Nash equilibrium exists in these revenue management games, and we also compare the total number of seats available in each fare class with, and without, competition. Analytical results as well as numerical examples demonstrate that more seats are protected for higher-fare passengers under horizontal competition than when a single airline acts as a monopoly. Under vertical competition the booking limit may be higher or lower, however, than the monopoly level, depending on the demand for connecting flights in each fare class. Finally, we discuss revenue-sharing contracts that coordinate the actions of both airlines. Horizontal and Vertical CompetitionAbstract: A well-studied problem in the literature on airline revenue (or yield) management is the optimal allocation of seat inventory among fare classes given a demand distribution for each class. In practice, the seat allocation decisions of one airline affect the passenger demands for seats on other airlines. In this paper we examine the seat inventory control problem under both horizontal competition (two airlines compete for passengers on the same flight leg) and vertical competition (different airlines fly different legs on a multi-leg itinerary). Such vertical competition can be the outcome of a code sharing agreement between airlines, for each airline sells seats on the partner airlines' flights but the airlines are unwilling, or unable, to coordinate yield management decisions. We provide a quite general sufficient condition under which a pure-strategy Nash equilibrium exists in these 'revenue management games', and we also compare the total number of seats available in each fare class with, and without, competition.Analytical results as well as numerical examples demonstrate that under horizontal competition more seats are protected for higher-fare passengers than when a single airline acts as a monopoly, while under vertical competition the booking limit may be higher, or lower, than the monopoly level, depending upon the demand for connecting flights in each fare class. Finally, we discuss revenue-sharing contracts that coordinate the actions of both airlines.

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Competition and Price Dispersion in the U.S. Airline Industry

Cited by 576 publications

References 10 publications

The Influence of Purchase Date and Flight Duration over the Dispersion of Airline Ticket Prices

The Influence of Purchase Date and Flight Duration over the Dispersion of Airline Ticket Prices

Competition and price discrimination in the market for mailing lists

Revenue Management Games: Horizontal and Vertical Competition

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