A dissertation
Implications for Public Policy
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- 2.7. Future Research
- 2.8. References
2.6. Implications for Public PolicyIn this study, observations were made using disaggregate data on a sample of 62 markets that cover a broad range of market structures. Some of the most important points that were shown include the following:
The results of this study could be used to support analysis of mergers and acquisitions, allocation of gate slots for new entrants, and other policies that relate to airline competition and the assessment of consumer welfare benefits. For example, this paper has shown that there are certain instances when monopoly routes exhibit lower price dispersion and lower average prices than competitive routes, as is the case of monopoly routes with one nonstop low cost carrier. These differences in monopoly routes highlight the importance of understanding price dispersion at the detailed, disaggregate level when analyzing the impact of future mergers and acquisitions. Perhaps most importantly from a public policy perspective, this paper shows the importance of disaggregate data that describe individual airline behavior. Much public policy discussion and analysis relies on average market values that can hide important market behavior. With the advent of internet-based ticketing, a powerful tool now exists that can be used to understand some of the finer detail of airline markets and competition. 2.7. Future ResearchIn future research efforts, there is a need for disaggregate demand data in order to link pricing strategies with demand as the day of departure approaches. This could be accomplished by pulling seat maps off of the internet while collecting airfares online. There is also an obvious need for more research, at the disaggregate level, on how codesharing affects pricing within a market. As more and more airlines begin to use codeshares, understanding the impacts on the market will become more important. There is also a need to link price dispersion to individual revenue management practices of airlines, as there appears to be evidence of more price dispersion in airlines with complex revenue management systems. Additionally, in future research efforts, it would be helpful to compare the offered ticket observations with an actual ticket sample to see which fares were actually purchased. In doing this, market sizes, carrier shares and average fares for each carrier could also be obtained from the ticket sample. 2.8. ReferencesBilotkach, V. (2005) Understanding price dispersion in the airline industry: Capacity constraints and consumer heterogeneity. Working Paper. Bilotkach, V. and Pejcinovska, M. (2007) Distribution of airline tickets: A tale of two market structures. Working Paper. Bilotkach, V., Talavera, O., Gorodnichenko, Y. and Zubenko, I. (2006) Are airlines' price setting strategies different? Working Paper. Borenstein, S. (1989) Hubs and high fares: Dominance and market power in the U.S. airline industry. The RAND Journal of Economics, 20 (3), 344-365. Borenstein, S. (2005) U.S. domestic airline pricing, 1995-2004. Working Paper. Borenstein, S. and Rose, N.L. (1994) Competition and price dispersion in the U.S. airline industry. The Journal of Political Economy, 102 (4), 653-683. Bureau of Transportation Statistics (2009) First-quarter 2009 airline financial data: Network airlines report sixth consecutive quarterly loss margin. Cento, A. (2009) The Airline Industry: Challenges in the 21st Century. Physica-Verlag, Springer Company, Heidelberg, Germany. Dana, J.D., Jr. (1999) Equilibrium price dispersion under demand uncertainty: The roles of costly capacity and market structure. The RAND Journal of Economics, 30 (4), 632-660. Gerardi, K. and Shapiro, A.H. (2007) The effects of competition on price dispersion in the airline industry: A panel analysis. Working Paper. Giaume, S. and Guillou, S. (2004) Price discrimination and concentration in European airline markets. Journal of Air Transport Management, 10 (5), 305-310. Harteveldt, H.H., Wilson, C.P., et al. (2004) Why leisure travelers book at their favorite site. Forester Research: Trends. Hayes, K.J. and Ross, L.B. (1998). Is airline price dispersion the result of careful planning or competitive forces? Review of Industrial Organization, 13 (5), 523-541. Liu, Q. and Serfes, K. (2006) Second-degree price discrimination and price dispersion: The case of the U.S. airline industry. Working Paper. Mentzer, M.S. (2000) The impact of discount airlines on domestic fares in Canada. Transportation Journal, 39 (4), 35-42. Pels, E. and Rietveld, P. (2004) Airline pricing behaviour in the London-Paris market. Journal of Air Transport Management, 10 (4), 277-281. PhoCusWright (2008) The PhoCusWright Consumer Travel Trends Survey. Pope, S., Garrow, L.A., Guin, A., Leonard, J.D., Bankston, L. and Campbell, P. (2009) A conceptual framework for collecting online airline pricing data: Challenges, opportunities, and preliminary results. Transportation Research Record: Journal of the Transportation Research Board, 2016, 30-37. Stavins, J. (2001) Price discrimination in the airline market: The effect of market concentration. The Review of Economics and Statistics, 83 (1), 200-202. Steenland, D.M. (May 14, 2008) Hearing on: Impact of consolidation on the aviation industry, with a focus on the proposed merger between Delta Air Lines and Northwest Airlines. Testimony to the House Committee on Transportation and Infrastructure, Subcommittee on Aviation. Verlinda, J.A. (2005) The effect of market structure on the empirical distribution of airline fares. Working Paper. Verlinda, J.A. and Lane, L. (2004) The effect of the internet on pricing in the airline industry. Working Paper. 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