A hedonic price assessment of airline service quality in the US

Abstract

This paper explores the relationship between carrier reputations for service quality and the price of air travel in the U.S. market. Using a sample of 1July-August 1995 published air fares, it demonstrates that airlines establish prices on the basis of 23 service characteristics ranging from ticketing restrictions to flight frequency and travel requirements. The residual price differences between carriers represent, at least in part, the varying reputations of carriers for service quality. They reflect the anticipated differences in quality of those characteristics difficult to assess at the point of purchase. A hedonic approach is found to be an important new tool for exploring price discrimination and product differentiation in deregulated markets.