City-Pairs Versus Airport-Pairs: A Market-Definition Methodology for the Airline Industry
- 1.3k Downloads
This paper provides a methodology for deciding which airports warrant grouping in multi-airport metropolitan areas. The methodology is based on the comparability of incremental competition effects from nearby airports on average fares at a metropolitan area’s primary airport. Results from a quarterly panel data set for the period 2003–2009 provide strong evidence that city-pairs, rather than airport-pairs, are the appropriate market definition for analyses of passenger air transportation involving many (but not all) large metropolitan areas. Based on the proposed method, we offer a recommended list of airports that should be grouped when creating city-pairs for the analysis of competition in the US domestic airline industry.
KeywordsAirports City-pair Market definition
The authors thank Lawrence White and two anonymous referees for helpful suggestions. The research reported in this paper was carried out with financial support from United Airlines. However, the views expressed in the paper are ours alone. The authors have also served as consultants to several other airlines.
- Armantier, O., & Richard, O. (2006). Evidence on pricing from the continental airlines and northwest airlines code-chare agreement. In D. Lee (Ed.), Advances in airline economics (Vol. 1, pp. 91–108). Amsterdam: Elsevier.Google Scholar
- Bennett, R. D., & Craun, J. M. (1993). The airline deregulation effect continues: The southwest effect. U.S. Department of Transportation, Office of Aviation Analysis, May 1993.Google Scholar
- Berry, S. T. (1990). Airport presence as product differentiation. American Economic Review, 80, 394–399.Google Scholar
- Berry, S., Carnall, M., & Spiller, P. (2006). Airline hubs: Costs, markups and the implications of customer heterogeneity. In D. Lee (Ed.), Advances in airline economics (Vol. 1, pp. 183–213). Amsterdam: Elsevier.Google Scholar
- Brueckner, J. K., Lee, D., & Singer, E. (2013). Airline competition and domestic U.S. airfares: A comprehensive reappraisal. Economics of Transportation, 2.Google Scholar
- Gayle, P., & Wu, C.-Y. (2011a). A re-examination of incumbents’ response to the threat of entry: Evidence from the airline industry. Kansas State University. : Unpublished paper.Google Scholar
- Gayle, P., & Wu, C.-Y. (2011b). Are air travel markets segmented along the lines of nonstop versus intermediate-stop(s) products?. Kansas State University. : Unpublished paper.Google Scholar
- Morrison, S. A. (2001). Actual, adjacent, and potential competition: Estimating the full effect of southwest airlines. Journal of Transport Economics and Policy, 32, 239–256.Google Scholar
- Pels, E., Nijkamp, P., & Rietveld, P. (2003). Access to and competition between airports: A case study for the San Francisco Bay Area. Transportation Research Part A, 37, 71–83.Google Scholar