Price Dispersion In The Airline Industry: A Conceptual Framework And Empirical Analysis

Many businesses compete in multiple markets which can cause businesses to temper their price adjustments, affecting price dispersion. The authors propose a framework based on major characteristics of competition and market structure which influence price dispersion. The focus of this study is the U.S. airline industry analyzing data from 5,974 city pair routes. The results of this empirical analysis show that multi-market contact and the interaction of market concentration with multi-market contact have considerable effects on price dispersion. An understanding of these effects provides valuable insights for developing pricing strategies and extending the stream of research on price dispersion.