Hubs versus Airport Dominance
29 Pages Posted: 26 Feb 2009
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: Suggested Citation
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