Airline Market Power and Intertemporal Price Dispersion

Abstract

This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the U.K . and the R epublic of Ireland. Price dispersion is measured by the G ini coefficient, calculated using fares posted on the Internet at specific days before takeoff. We control for passengers' heterogeneity in their purpose of travel, as well as for such peak periods as C hristmas and E aster. Our finding of a negative correlation between competition and price dispersion suggests that competition is likely to hinder the airlines' ability to price discriminate, although this effect appears to be lessened in peak periods.