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Pricing Dynamics in the Australian Airline Market

Authors


  •  For assistance in collecting and processing fare data, the authors thank Ben Mossemenear, Jesse Rothenberg and Min Zhao. The authors would like to acknowledge the thoughtful input of two anonymous referees. The authors also thank Murali Agastya and Andrew Wait; seminar participants at the University of Groningen and the University of Melbourne; and conference participants at the Conference of the European Association for Research in Industrial Economics for valuable comments and encouragement.

Nicolas de Roos, Faculty of Economics and Business, Merewether Building H04, University of Sydney, NSW 2006, Australia. E-mail: nicolas.deroos@sydney.edu.au

Abstract

We examine price dispersion in a large dataset of Australian domestic airfares. The airlines vary the lowest available fares on successive booking days by restricting the menu of available ticket types, and by changing the prices for some of those types. Our fixed-effects estimator allows us to characterise both of those mechanisms. The greatest price variation occurs on routes involving competition between the two main airlines, Qantas and Virgin; there is greater variation on monopoly routes than on routes pitting Virgin against the Qantas subsidiary, Jetstar. The lowest fares rise rapidly in the week before travel.

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