Thursday, July 30, 2009

Hubs Versus Airport Dominance

Professors Volodymyr Bilotkach & Vivek Pai of UC Irvine's Department of Economics have an informative working paper on airport dominance up on SSRN.  See Hubs Versus Airport Dominance (Working Paper, Feb. 25, 2009) (available here).  From the abstract:

This study separates what is known in the literature as the airport dominance effect (dominant airline's ability to charge higher fares for trips to/from the airport at which it has the dominant position) into what can be interpreted as quality and market power based components, using price data for trips to/from/through five US airports, each serving as a hub for two US carriers. We find market power based component of the dominance premium is smaller than the quality based one. We also determine that dominant carriers exercise their market power on an average customer rather than a price insensitive business traveler. This is in contrast to what previous studies suggested.

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