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
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: Suggested Citation