Hubs versus Airport Dominance

29 Pages Posted: 26 Feb 2009

See all articles by Volodymyr Bilotkach

Volodymyr Bilotkach

Newcastle Business School

Vivek Pai

University of California, Irvine - Department of Economics

Date Written: February 25, 2009

Abstract

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.

Keywords: Airlines, Hub Premium, Airport Dominance, Frequent Flier Programs

JEL Classification: L13, L29, L50, L93

Suggested Citation

Bilotkach, Volodymyr and Pai, Vivek, Hubs versus Airport Dominance (February 25, 2009). Available at SSRN: https://ssrn.com/abstract=1349381 or http://dx.doi.org/10.2139/ssrn.1349381

Volodymyr Bilotkach (Contact Author)

Newcastle Business School ( email )

208, City Campus East-1
Newcastle upon-Tyne, NE1 8ST
United Kingdom

Vivek Pai

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

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