Is the Effect of Competition on Price Dispersion Non-Monotonic? Evidence from the U.S. Airline Industry

28 Pages Posted: 11 Apr 2006 Last revised: 12 Oct 2012

Mian Dai

Drexel University

Qihong Liu

University of Oklahoma - Department of Economics

Konstantinos Serfes

Drexel University - School of Economics

Date Written: October 12, 2012

Abstract

We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a non-monotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but is associated with less price dispersion in competitive markets (i.e. an inverse-U relationship). Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature.

Keywords: Price Dispersion, Second-Degree Price Discrimination, Airline Industry

JEL Classification: D43, L11, L93

Suggested Citation

Dai, Mian and Liu, Qihong and Serfes, Konstantinos, Is the Effect of Competition on Price Dispersion Non-Monotonic? Evidence from the U.S. Airline Industry (October 12, 2012). Available at SSRN: https://ssrn.com/abstract=890104 or http://dx.doi.org/10.2139/ssrn.890104

Mian Dai

Drexel University ( email )

Philadelphia, PA 19104
United States

Qihong Liu (Contact Author)

University of Oklahoma - Department of Economics ( email )

Norman, OK 73019-2103
United States
405-325-5846 (Phone)
405-325-5842 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/L/Qihong.Liu-1/

Konstantinos Serfes

Drexel University - School of Economics ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

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