Pricing of imperfect substitutes: The next flight is not the same flight

Julien E. van den Bogaard, Mark G. Lijesen

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We investigate how airfares respond to changes in the fare of adjacent flights. Using a fixed effects regression on fares from Amsterdam to Geneva, we find flights that only differ in departure times to be weak substitutes. Fare-to-fare elasticities for imperfect substitute flights of different airlines are even smaller, implying weak competition between airlines on this specific route. If our findings hold for other routes as well, this will have implications for the analysis of price dispersion in civil aviation. It would imply that demand shocks for individual flights have small effects on prices of other flights. Demand volatility would then be likely to affect price dispersion on a route level and should be considered when analyzing price dispersion.

Original languageEnglish
Article number100741
JournalResearch in Transportation Economics
Volume78
Issue numberDecember
DOIs
Publication statusPublished - 2019

Fingerprint

flight
pricing
Transportation charges
Costs
Civil aviation
Elasticity
demand
air traffic
Price dispersion
Pricing
Substitute
regression
Demand shocks
Fixed effects
Airline competition
Airlines
Airfare

Keywords

  • Airlines
  • Imperfect substitutes
  • Pricing
  • Product differentiation

Cite this

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title = "Pricing of imperfect substitutes: The next flight is not the same flight",
abstract = "We investigate how airfares respond to changes in the fare of adjacent flights. Using a fixed effects regression on fares from Amsterdam to Geneva, we find flights that only differ in departure times to be weak substitutes. Fare-to-fare elasticities for imperfect substitute flights of different airlines are even smaller, implying weak competition between airlines on this specific route. If our findings hold for other routes as well, this will have implications for the analysis of price dispersion in civil aviation. It would imply that demand shocks for individual flights have small effects on prices of other flights. Demand volatility would then be likely to affect price dispersion on a route level and should be considered when analyzing price dispersion.",
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Pricing of imperfect substitutes : The next flight is not the same flight. / van den Bogaard, Julien E.; Lijesen, Mark G.

In: Research in Transportation Economics, Vol. 78, No. December, 100741, 2019.

Research output: Contribution to JournalArticleAcademicpeer-review

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AB - We investigate how airfares respond to changes in the fare of adjacent flights. Using a fixed effects regression on fares from Amsterdam to Geneva, we find flights that only differ in departure times to be weak substitutes. Fare-to-fare elasticities for imperfect substitute flights of different airlines are even smaller, implying weak competition between airlines on this specific route. If our findings hold for other routes as well, this will have implications for the analysis of price dispersion in civil aviation. It would imply that demand shocks for individual flights have small effects on prices of other flights. Demand volatility would then be likely to affect price dispersion on a route level and should be considered when analyzing price dispersion.

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