TY  - JOUR
AU  - Berry,Steven
AU  - Carnall,Michael
AU  - Spiller,Pablo T.
TI  - Airline Hubs: Costs, Markups and the Implications of Customer Heterogeneity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5561
PY  - 1996
Y2  - May 1996
UR  - http://www.nber.org/papers/w5561
L1  - http://www.nber.org/papers/w5561.pdf
N1  - Author contact info:
Steven T. Berry
Yale University Department of Economics
Box 208264
37 Hillhouse Avenue
New Haven, CT 06520-8264
Tel: 203/432-3556
Fax: 203/432-6323
E-Mail: steven.berry@yale.edu

Pablo T. Spiller
University of California
Walter A. Haas School of Business
Faculty Bldg. 593
Berkeley, CA 94720
Tel: 510/642-1502
Fax: 510/642-2826
E-Mail: spiller@haas.berkeley.edu
AB  - This paper estimates a model of airline competition that captures the two major features of the industry: product differentiation and economies of density.  The results not only provide support to some of the traditional common wisdom in the industry, but are also useful for understanding major puzzles concerning the evolution of the industry. The estimates indicate that a hubbing airline's ability to raise prices is focused on tickets that appeal to price-inelastic business travelers, who favor the origin-hub airline, even while paying an average premium of 20%.  These high prices do not, however, provide a `monopoly umbrella' to other non-hub airlines.  Finally, on the cost side there is evidence of economies of density (and therefore cost economies of hubbing) on longer routes.  Consistent with the `Southwest Airlines' effect, there is no evidence of economies of density on shorter routes.
ER  -