Product Unbundling in the Travel Industry: The Economics of Airline Bag Fees

28 Pages Posted: 29 Jul 2015

See all articles by Jan K. Brueckner

Jan K. Brueckner

University of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Darin Lee

Compass Lexecon; Law and Economics Consulting Group (LECG), LLC

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg

Ethan Singer

University of Minnesota - Minneapolis

Multiple version iconThere are 2 versions of this paper

Date Written: Fall 2015

Abstract

This paper provides theory and evidence on airline bag fees, offering insights into a real‐world case of product unbundling. The theory predicts that an airline's fares should fall when it introduces a bag fee, but that the full‐trip price (the bag fee plus the new fare) could either rise or fall. The empirical evidence presented in the paper provides strong confirmation of the first prediction. The data also suggest that the average fare falls by less than the bag fee itself so that the full price of a trip rises for passengers who choose to check bags.

Suggested Citation

Brueckner, Jan K. and Lee, Darin N. and Picard, Pierre M. and Singer, Ethan, Product Unbundling in the Travel Industry: The Economics of Airline Bag Fees (Fall 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 3, pp. 457-484, 2015. Available at SSRN: https://ssrn.com/abstract=2637083 or http://dx.doi.org/10.1111/jems.12106

Jan K. Brueckner (Contact Author)

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Darin N. Lee

Compass Lexecon ( email )

United States

Law and Economics Consulting Group (LECG), LLC ( email )

350 Massachusetts Avenue, Suite 300
Cambridge, MA 02139
United States

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

Ethan Singer

University of Minnesota - Minneapolis ( email )

Pharmaceutics
308 Harvard Street SE
Minneapolis, MN 55455
United States

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