Airline Market Power and Intertemporal Price Dispersion

Authors


  • We are grateful to the Editor and two anonymous referees for helpful comments on a previous version. We wish to thank Luca Beltrametti, Holger Breinlich, Martin Dresner, Marco Francesconi, Pierre Régibeau, Maxim Sinitsyn and George Symeonidis. Piga gratefully acknowledges the receipt of a British Academy Research Grant SG-45975 and financial support from a Leverhulme Trust Research Fellowship Grant 2007/22.

Abstract

This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the U.K. and the Republic of Ireland. Price dispersion is measured by the Gini coefficient, calculated using fares posted on the Internet at specific days before takeoff. We control for passengers' heterogeneity in their purpose of travel, as well as for such peak periods as Christmas and Easter. Our finding of a negative correlation between competition and price dispersion suggests that competition is likely to hinder the airlines' ability to price discriminate, although this effect appears to be lessened in peak periods.

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