Airfares with codeshares: (why) are consumers willing to pay more for products of foreign firms with a domestic partner?

Tinbergen Institute Discussion Paper 2018-077/VIII

35 Pages Posted: 14 Nov 2018 Last revised: 3 Mar 2021

See all articles by Gerben De Jong

Gerben De Jong

Hebrew University of Jerusalem; VU University Amsterdam

Christiaan Behrens

VU University Amsterdam - Department of Economics

Hester van Herk

VU University Amsterdam

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: February 28, 2021

Abstract

Economic globalization has spurred the growth of international cooperation between companies. This paper analyzes partnerships between foreign and domestic firms as a source of signaling advantages. When partnerships affect the products offered, it is not possible to isolate this signaling impact. Virtual codesharing is an important type of marketing partnership in aviation that does not change the product and hence provides the opportunity to identify the direct impact of partnerships on consumer valuation of the partnered products. Roughly 75 per cent of the flights in trans-Atlantic and Pacific markets involves codesharing. Typically, the consumer buys the ticket with the domestic airline, while a foreign airline operates the flight. Analyzing individual-level choice data from a representative panel of Australian air travelers, we find that the average consumer is willing to a pay a premium between 4 and 5.5% of the ticket price when a flight by a foreign carrier is codeshared with the national carrier Qantas. When flying to a less familiar destination, risk averse consumers are willing to pay a premium about two times higher than non-risk averse consumers, suggesting that partnerships have a strong impact on consumer valuation through quality signaling.

Keywords: airline codesharing, marketing partnerships, consumer choice behavior, quality signaling, aviation industry

JEL Classification: L15, L93, M31

Suggested Citation

Jong, Gerben De and Jong, Gerben De and Behrens, Christiaan and van Herk, Hester and Verhoef, Erik T., Airfares with codeshares: (why) are consumers willing to pay more for products of foreign firms with a domestic partner? (February 28, 2021). Tinbergen Institute Discussion Paper 2018-077/VIII, Available at SSRN: https://ssrn.com/abstract=3271115 or http://dx.doi.org/10.2139/ssrn.3271115

Gerben De Jong (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

Christiaan Behrens

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

Hester Van Herk

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 020 4446094 (Phone)
+31 020 4446004 (Fax)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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