Effects of Competition on Ticket Fare Distributions of Legacy Airlines

Abstract

I analyze the effects of competition on fare distributions of legacy airlines in the US, using panel data from 2017Q1 to 2019Q4. In line with Gerardi and Shapiro, I find that price dispersion decreases with competition. I also find that competition has different effects across legacy airlines’ fare distributions in the US than what Chandra and Lederman found in Canada. In the US, competition has the most negative effect at the highest price percentiles of the fare distribution, while Chandra and Lederman found that the effect of competition is steepest in the center of the fare distribution in Canada. Furthermore, I expand on Gerardi and Shapiro’s results by allowing for carrier-specific effects and competition split out by both carrier types and identity of individual carriers. I establish that the carrier type is most determinant of the magnitude of competitive effect on a given airline, not the identity of the competitor nor the identity of the given airline.