Price Discrimination and Focal Points for Tacit Collusion: Evidence from the Airline Industry

Authors

Diego Escobari, The University of Texas Rio Grande Valley
Nicholas G. Rupp
Joseph Meskey

Document Type

Article

Publication Date

11-27-2018

Abstract

We use unique data sets with round-the-clock posted fares and a regression discontinuity design to identify price discrimination in advance-purchase discounts. Price discrimination increases fares by 7.6% at 14 days to departure, and by 14% at 7 days to departure. While competition reduces price discrimination, it is unaffected by product variety for a multiproduct monopolist. The results show that the arbitrary thresholds of 7 and 14 days-in-advance serve as focal points for tacit collusion and to implement price discrimination in competitive markets. For round-trip tickets price discrimination depends on the days-in-advance for both the outbound and inbound flights.

Recommended Citation

Escobari, Diego and Rupp, Nicholas G. and Meskey, Joseph, Price Discrimination and Focal Points for Tacit Collusion: Evidence from the Airline Industry (November 27, 2018). Available at SSRN: https://ssrn.com/abstract=2815279 or http://dx.doi.org/10.2139/ssrn.2815279

DOI

10.2139/ssrn.2815279