Wednesday, January 18, 2012
Posted by D. Daniel Sokol
Seongman Moon (Universidad Carlos III de Madrid) and Makoto Watanabe (Universidad Carlos III de Madrid) discuss Refundability and Price: Empirical Analysis on the Airline Industry.
ABSTRACT: This paper provides new evidence on price dispersion in the US airline industry. Using the observed fare differences between refundable and non-refundable tickets, we first document evidence on the prices passengers pay for a refund option. We find that the factors related to the value of refund option and customers' individual demand uncertainty have a significant effect on the relative refund fares. This finding is robust for various market structures. Further, taking into account the variations of the relative refund fares, we investigate the effects of market structure on price dispersion.