Reputation, Search Cost, and Airfares

Abstract:     
We compare fares offered by Southwest Airlines to those found through Orbitz on-line travel agency. We find that lowest last-minute fares, offered by Southwest, are on average 8.5% higher than the lowest fares one can find on Orbitz. We determine that Southwest offers higher fares as compared to other airlines for longer journeys; where the carrier offers higher frequency of service; and on markets with lower income customers. The hypothesis that Southwest offers higher last-minute fares because of different yield management practice is not supported. We suggest that the observed result is consistent with exploitation of Southwest Airlines' reputation coupled with the high opportunity cost of shopping around faced by the last minute travelers.

Number of Pages in PDF File: 20

Keywords: Reputation, Southwest Airlines, Offered Fares, Search Cost

JEL Classification: L10, L93

working papers series