Incumbent Response to Entry by Low-Cost Carriers in the U.S. Airline Industry

32 Pages Posted: 17 Feb 2012 Last revised: 10 Aug 2017

Date Written: March 11, 2015

Abstract

This paper studies incumbent price response to entry by low-cost carriers in the U.S. airline industry. I find that legacy carrier incumbents decrease their mean airfare, 10th percentile airfare, and 90th percentile airfare following entry by a low-cost carrier. Airfares decrease by a larger percentage at the right tail of the incumbents' price distribution than at the left tail, suggesting that increased competition from low-cost carrier entrants leads to lower price dispersion.

JEL Classification: L11, L93

Suggested Citation

Tan, Kerry M., Incumbent Response to Entry by Low-Cost Carriers in the U.S. Airline Industry (March 11, 2015). Southern Economic Journal 82(3), 874-892. Available at SSRN: https://ssrn.com/abstract=2006471 or http://dx.doi.org/10.2139/ssrn.2006471

Kerry M. Tan (Contact Author)

Loyola University Maryland ( email )

4501 N. Charles Street
Sellinger Hall 321
Baltimore, MD 21210
United States
(410)617-2460 (Phone)

HOME PAGE: http://evergreen.loyola.edu/~kmtan/

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