Product Quality Choices and Competition: Evidence from the U.S. Airline Industry

42 Pages Posted: 15 Sep 2016 Last revised: 23 Mar 2018

See all articles by Nicholas G. Rupp

Nicholas G. Rupp

East Carolina University - Department of Economics

Nian Liu

Analysis Group, Inc.

Date Written: March 19, 2018

Abstract

This paper examines how network carriers adjust product quality given the competition from a low cost carrier (LCC). While previous research has shown that product quality (measured by on-time performance) suffers from heightened competition by LCC (Prince and Simon, 2015), our results find the contrary. Network carriers differentiate themselves by offering higher product quality through lower seat density and more first class/business class seating. Network carrier’s product quality response to other LCCs depends on market overlap. When considerable overlap exists, network carriers offer higher product quality by reducing seating density and/or increasing the proportion of first class/business class seats.

Keywords: Quality Competition, Airlines, Low Cost Carriers

JEL Classification: L13, L93

Suggested Citation

Rupp, Nicholas G. and Liu, Nian, Product Quality Choices and Competition: Evidence from the U.S. Airline Industry (March 19, 2018). Available at SSRN: https://ssrn.com/abstract=2837025 or http://dx.doi.org/10.2139/ssrn.2837025

Nicholas G. Rupp (Contact Author)

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/

Nian Liu

Analysis Group, Inc. ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199
United States

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