Price Effects and Switching Costs of Airlines Frequent Flyer Program

17 Pages Posted: 4 Jul 2012  

Claudio A. Agostini

Universidad Adolfo Ibañez

Diego Inostroza

affiliation not provided to SSRN

Manuel Willington

Escuela de Gobierno - Universidad Adolfo Ibáñez

Date Written: July 4, 2012

Abstract

Frequent flier programs create a switching cost for the consumer and allow firms to exercise market power. In Chile there is a dominant airline in domestic markets that has a frequent flyer program with a large number of affiliates and it faces some competition from two small carriers that do have a frequent flyer program. Using a unique dataset for Chile we estimate the switching cost of each airline and the impact of the dominant airline frequent flyer program on prices. The results show a fare premium of around 18% due to the frequent flyer program.

Keywords: Airlines, Frequent Flyer Programs, Switching Costs, Chile

JEL Classification: L93, L11

Suggested Citation

Agostini, Claudio A. and Inostroza, Diego and Willington, Manuel, Price Effects and Switching Costs of Airlines Frequent Flyer Program (July 4, 2012). Available at SSRN: https://ssrn.com/abstract=2100496 or http://dx.doi.org/10.2139/ssrn.2100496

Claudio A. Agostini (Contact Author)

Universidad Adolfo Ibañez ( email )

Diagonal Las Torres 2640
Santiago
Chile
(562)3311130 (Phone)

HOME PAGE: http://www.uai.cl/profesores/claudio-agostini

Diego Inostroza

affiliation not provided to SSRN ( email )

Carlos Manuel Willington

Escuela de Gobierno - Universidad Adolfo Ibáñez ( email )

Av. Diagonal Las Torres 2640
Peñalolén
Santiago, RM
Chile

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