Price Discrimination and Focal Points for Tacit Collusion: Evidence from the Airline Industry

42 Pages Posted: 28 Jul 2016 Last revised: 24 Mar 2017

See all articles by Diego Escobari

Diego Escobari

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance; Texas A&M University - Department of Economics

Nicholas G. Rupp

East Carolina University - Department of Economics

Joseph Meskey

East Carolina University

Date Written: January 10, 7

Abstract

We use unique data sets with round-the-clock posted fares and a regression discontinuity design to identify price discrimination in advance-purchase discounts. Price discrimination increases fares by 14% between two and one week before departure, and by 7.6% between three and two weeks to departure. While competition reduces price discrimination, it is unaffected by product variety for a multiproduct monopolist. The results show that the arbitrary thresholds of 7 and 14 days-in-advance serve as focal points for tacit collusion and to implement price discrimination in competitive markets. For round-trip tickets price discrimination depends on the days-in-advance for both the outbound and inbound flights.

Keywords: Price discrimination, Market structure, Focal points, Multiproduct monopolist, Advance purchases, Regression discontinuity, Airlines

JEL Classification: C23, L93, R41

Suggested Citation

Escobari, Diego and Rupp, Nicholas G. and Meskey, Joseph, Price Discrimination and Focal Points for Tacit Collusion: Evidence from the Airline Industry (January 10, 7). Available at SSRN: https://ssrn.com/abstract=2815279 or http://dx.doi.org/10.2139/ssrn.2815279

Diego Escobari (Contact Author)

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance ( email )

1201 W. University Drive
Edinburg, TX 78539-2999
United States

HOME PAGE: http://faculty.utrgv.edu/diego.escobari

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

Nicholas G. Rupp

East Carolina University - Department of Economics ( email )

Brewster Building
Greenville, NC 27858
United States
252.328.6821 (Phone)
252.328.6743 (Fax)

HOME PAGE: http://myweb.ecu.edu/ruppn/

Joseph Meskey

East Carolina University ( email )

Greenville, NC 27858
United States

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