Revisiting the Relationship between Competition and Price Discrimination
40 Pages Posted: 9 Aug 2014 Last revised: 20 Nov 2016
Date Written: August 9, 2016
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: Suggested Citation