NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Competition and Price Dispersion in the U.S. Airline Industry

Severin Borenstein, Nancy L. Rose

NBER Working Paper No. 3785 (Also Reprint No. r1945)
Issued in July 1991
NBER Program(s):   IO

This papers analyzes dispersion in the prices that an airline charges to different customers on the same route. Such variation in airlines fares is substantial: the expected absolute difference in fares between two of an airline's passengers on a route averages thirty-six percent of the airline's average ticket price on the route. The pattern of price dispersion that we find does not seem to be explained solely by cost differences. Dispersion is higher on more competitive routes, possibly reflecting a pattern of discrimination against customers who are less willing to switch to alternative flights or airlines. We argue that the data support an explanation based on theories of price discrimination in monopolistically competitive industries.

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Document Object Identifier (DOI): 10.3386/w3785

Published: Journal of Political Economy, August 1994, 102 (4): 653-683

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