Hubs versus Airport Dominance
Newcastle Business School
University of California, Irvine - Department of Economics
February 25, 2009
This study separates what is known in the literature as the airport dominance effect (dominant airline's ability to charge higher fares for trips to/from the airport at which it has the dominant position) into what can be interpreted as quality and market power based components, using price data for trips to/from/through five US airports, each serving as a hub for two US carriers. We find market power based component of the dominance premium is smaller than the quality based one. We also determine that dominant carriers exercise their market power on an average customer rather than a price insensitive business traveler. This is in contrast to what previous studies suggested.
Number of Pages in PDF File: 29
Keywords: Airlines, Hub Premium, Airport Dominance, Frequent Flier Programs
JEL Classification: L13, L29, L50, L93
Date posted: February 26, 2009
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