Revisiting the Relationship between Competition and Price Discrimination

40 Pages Posted: 9 Aug 2014 Last revised: 20 Nov 2016

See all articles by Ambarish Chandra

Ambarish Chandra

University of Toronto

Mara Lederman

University of Toronto - Rotman School of Management

Date Written: August 9, 2016

Abstract

We revisit the relationship between competition and price discrimination in the airline industry. Theoretically, we show that, if consumers differ in terms of both their underlying willingness-to-pay and their brand loyalty, competition may increase price differences between some consumers while decreasing them between others. Empirically, we find that competition has little impact on tickets at the top or the bottom of the fare distribution but a significant impact on tickets in the middle, thus increasing some fare differentials but decreasing others. Our findings highlight the importance of understanding the relevant sources of consumer heterogeneity and can reconcile earlier conflicting findings.

Keywords: price discrimination, competition, airlines

JEL Classification: D43, L13, L93

Suggested Citation

Chandra, Ambarish and Lederman, Mara, Revisiting the Relationship between Competition and Price Discrimination (August 9, 2016). Rotman School of Management Working Paper No. 2477719, Available at SSRN: https://ssrn.com/abstract=2477719 or http://dx.doi.org/10.2139/ssrn.2477719

Ambarish Chandra

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S3E6
Canada

Mara Lederman (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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