On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products

Gayle, Philip and Wu, Chi-Yin (2015): On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products. Forthcoming in: Review of Network Economics

Abstract

Analysts of air travel markets, which include antitrust authorities, are interested in understanding the extent to which the presence of intermediate stop(s) products influences the pricing of nonstop products. This paper uses a structural econometric model to investigate the potential pricing interdependence between these two product types in domestic air travel markets. Counterfactual experiments using the estimated model suggest that in many (but far from a majority) markets the current prices of nonstop products are at least 5% lower than they would otherwise be owing to the presence of intermediate-stop(s) products.

• Item Type: MPRA Paper
• Language: English
• Keywords: Substitutability and Pricing Interdependence between Differentiated Air Travel Products; Discrete Choice Demand Model; Random Coefficients Logit
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L40 - General; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation

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