City-Pairs Versus Airport-Pairs: A Market-Definition Methodology for the Airline Industry
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- Brueckner, J.K., Lee, D. & Singer, E. Rev Ind Organ (2014) 44: 1. doi:10.1007/s11151-012-9371-7
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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.