IS THE EFFECT OF COMPETITION ON PRICE DISPERSION NONMONOTONIC? EVIDENCE FROM THE U.S. AIRLINE INDUSTRY

IS THE EFFECT OF COMPETITION ON PRICE DISPERSION NONMONOTONIC? EVIDENCE FROM THE U.S. AIRLINE INDUSTRY

We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a nonmonotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but with less pri...

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Veröffentlicht in:The review of economics and statistics 2014-03, Vol.96 (1), p.161-170
Hauptverfasser: Dai, Mian, Liu, Qihong, Serfes, Konstantinos
Format: Artikel
Sprache:eng
Schlagworte:
Air transportation industry
Airline industry
Airlines
Competition
Duopolies
Economic competition
Economic models
Economic theory
Herfindahl Hirschman index
Intuition
Market analysis
Market prices
Monopoly
Nonmonotonic logic
Oligopoly
Price competition
Price discrimination
Price variance
Prices
Studies
U.S.A
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Beschreibung
Zusammenfassung:We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a nonmonotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but with less price dispersion in competitive markets—an inverse-U relationship. Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest_a_00362