When Do Firms Offer Higher Product Quality? Evidence from the Allocation of Inflight Amenities

30 Pages Posted: 15 Nov 2016 Last revised: 29 Jul 2020

See all articles by Myongjin Kim

Myongjin Kim

University of Oklahoma - Department of Economics

Qihong Liu

University of Oklahoma - Department of Economics

Nicholas G. Rupp

East Carolina University - Department of Economics

Date Written: July 5, 2020

Abstract

We examine how competition impacts the provision of product quality. Using a unique data set of inflight amenities provided by U.S. airlines, we find that the composition of competition matters with significantly higher product quality (Wi-Fi, entertainment, and power) on more competitive routes (with lower HHI). The presence of Southwest Airlines on the route, however, is shown to reduce product quality offerings. We also find significantly higher product quality on routes with more passengers, tourist destinations, and red-eye flights. On the most competitive routes carriers are more likely to indicate the presence of Wi-Fi first and later on reverse it when getting closer to departure. We also examine airline pricing of inflight amenities which serve as additional revenue streams for carriers. We find that carriers have lower posted base ticket prices on routes with Wi-Fi and entertainment while offering a la carte pricing for these amenities.

Keywords: Airlines; Inflight Amenities; Pricing

JEL Classification: L15, L19, L93

Suggested Citation

Kim, Myongjin and Liu, Qihong and Rupp, Nicholas G., When Do Firms Offer Higher Product Quality? Evidence from the Allocation of Inflight Amenities (July 5, 2020). Available at SSRN: https://ssrn.com/abstract=2869213 or http://dx.doi.org/10.2139/ssrn.2869213

Myongjin Kim

University of Oklahoma - Department of Economics ( email )

308 Cate Center Drive
Norman, OK 73019-2103
United States

Qihong Liu (Contact Author)

University of Oklahoma - Department of Economics ( email )

Norman, OK 73019-2103
United States
405-325-5846 (Phone)

HOME PAGE: http://qliu.oucreate.com

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/

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