Intertemporal Price Discrimination: The Role of Competition

Abstract

This paper considers European airline markets to establish a causal effect of competition on pricing dynamics. It shows that intertemporal price dispersion is strongly reduced by competition because flights booked close to departure time are on average priced substantially lower when competition increases. This way competition implies a reduction in intertemporal price discrimination mainly benefiting late bookers. Low-cost carrier competition appears to have a strong and lasting negative effect on intertemporal price dispersion. The effect of competition by full-service carriers is moderate and seems to disappear in the long run.

Keywords: Price dispersion, competition, Europe, airlines, full-service carrier, low-cost carrier