Using Online Data to Explore Competitive Airline Pricing Policies

Abstract

Since the mid-2000s, the airline industry has seen volatile fuel prices, a record number of carriers ending service, and a merger between two major airlines. In a time of such turmoil in the industry, it is increasingly important to understand the relationship between airline consolidation and competitive pricing policies, because this relationship directly affects the formation of new airline policies associated with competition policy (antitrust), deregulation, and mergers. However, there is a lack of consensus about market concentration and its influence on airfares, mainly because of data limitations of past research. Given the emergence of online booking engines, there is a new opportunity to collect detailed fare data. This project uses disaggregate online airfare data to study the relationship between market concentration and pricing policies. The data set includes 62 markets that cover a broad range of market structures. A case study approach is used to analyze the data. Using disaggregate fare data, this study finds low price dispersion can be associated with both low and high levels of market concentration. As the day of departure approaches, price dispersion is observed to increase or decrease, depending on the market. Additionally, peak and off-peak periods demonstrate different pricing strategies. Markets with codeshares sometimes exhibit unusually high price dispersion.