Munich Personal RePEc Archive

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

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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.

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