Price Dispersion Over the Business Cycle: Evidence from the Airline Industry

Authors


  • We thank Jim Adams, Ana Aizcorbe, Ben Bridgman, Abe Dunn, Matt Grennan, Matt Osborne, and Kyle Hood for helpful comments and discussions. We also thank the Editor, as well as two anonymous referees for suggestions that greatly improved the paper. The views expressed in this paper are solely those of the authors and do not necessarily reflect the views of the Bureau of Economic Analysis, the U.S. Department of Commerce, the Federal Reserve Bank of Atlanta or the Federal Reserve System. The research presented here was primarily conducted while at the Federal Reserve Bank of Boston.

Abstract

This study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry. Performing a fixed-effects panel analysis on seventeen years of data covering two business cycles, we find that price dispersion is highly pro-cyclical. This effect is especially pronounced for legacy carriers relative to low-cost carriers. We show that our empirical result is consistent with firms' implementing second-degree price-discrimination tactics.

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