Appendix to “Cost pass-through in Commercial Aviation: Theory and Evidence” – Theoretical Derivations

Gayle, Philip and Lin, Ying (2020): Appendix to “Cost pass-through in Commercial Aviation: Theory and Evidence” – Theoretical Derivations. Forthcoming in: Economic Inquiry

Abstract

This appendix serves as a supplement to “Cost Pass-through in Commercial Aviation: Theory and Evidence.” In this appendix we present the computational details of the theoretical model as well as the model predictions described in the text of the above-mentioned paper. Using a model of air travel demand and supply for an origin-destination market, we derive the closed-form expression for Nash equilibrium airfares, and use the closed-form expression to perform a series of comparative statics exercises. In particular, crucial expressions for obtaining predictions in Table 1 and Table 2 in the paper (Gayle and Lin, 2020) are provided.

• Item Type: MPRA Paper
• Language: English
• Keywords: Crude oil-Airfare Cost Pass-through; Jet fuel hedging
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation

References

Gayle, Philip G., and Ying Lin. “Cost Pass-Through in Commercial Aviation: Theory and Evidence,” forthcoming in Economic Inquiry, 2020.

Wang, X. Henry, and Jingang Zhao. "Welfare reductions from small cost reductions in differentiated oligopoly." International Journal of Industrial Organization 25, no. 1 (2007): 173-185.