This dissertation analyzes the sources of price dispersion due to the price
discrimination in the U.S. airline industry. Using the multi-stage budgeting approach
with the almost ideal demand system (AIDS) specification, we estimate demand for air
travel at the airline level, and empirically decompose an airline’s own price elasticity
into cross-price elasticity vis-à-vis other airlines and an industry elasticity. Conceptually,
cross-price elasticity measures the responsiveness of quantity demanded of airline
service offered by an airline to a unilateral change in the firm’s own price with total
expenditures given, whereas the industry elasticity measures the responsiveness of total
quantity of airline travel demanded to a change in the overall price of air travel. Then,
we investigate the determinants of price dispersion induced by discriminatory pricing
across airline routes. Our results show that cross-price elasticity of demand for air travel,
reflecting competitive-type discrimination, is the key factor affecting price dispersion in
the airline industry. This result is consistent with the earlier findings of Borenstein and
Rose (1994), but is based on a direct test of the underlying theory of Holmes (1989).
| Identifer | oai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/ETD-TAMU-1771 |
| Date | 02 June 2009 |
| Creators | Kim, Jong Ho |
| Contributors | Wiggins, Steven |
| Source Sets | Texas A and M University |
| Language | en_US |
| Detected Language | English |
| Type | Book, Thesis, Electronic Dissertation, text |
| Format | electronic, application/pdf, born digital |
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