AIRLINE PRICING BEHAVIOR UNDER LIMITED INTER‐MODAL COMPETITION

Angela Stefania Bergantino · Claudia Capozza

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Aviation Industry Analysis and Trends Merger and Competition Analysis Transport and Economic Policies

Abstract

This paper empirically analyzes airline pricing for short‐haul flights in contexts with no credible threat of inter‐modal competition. To this end, we explore the southern Italian market since it is less accessible by other transport modes and thus fares are the direct outcome of air‐related competition. We show, in fact, that market power matters, depending on the level of intra‐modal competition, and that airlines apply differentiated mark‐ups. Besides, consistent with the implementation of inter‐temporal price discrimination (IPD), we find a non‐monotonic inter‐temporal profile of fares with a turning point included in the interval of the 43rd to 45th days before departure. Finally, we provide evidence that in more competitive markets, airlines are more likely to engage inIPD. (JELL11,L13,L93)

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References

2001Econometric Analysis of Cross Section and Panel Data 1988The Theory of Industrial Organization 1989Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry 1994Competition and Price Dispersion in the U.S. Airline Industry 2007Risk Ownership in Contract Manufacturing 1979Intertemporal Price Discrimination 2009Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry 1998Advance‐Purchase Discounts and Price Discrimination in Competitive Markets

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