Price Effects and Switching Costs of Airlines Frequent Flyer Program
17 Pages Posted: 4 Jul 2012
Date Written: July 4, 2012
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: Suggested Citation