Airline Pricing, Price Dispersion and Ticket Characteristics On andOffthe Internet

This paper uses a unique individual transactions data set to investigatethe effects of internet purchase on the prices paid for airline tickets.The analysis also investigates the effects of changes in the percentageof online transactions on both online and offline prices and on pricedispersion. The analysis also uses these unique data to provide a morecomplete analysis of the factors affecting airline price levels andprice dispersion, contributing more generally to our understanding ofairline pricing. Our novel data set includes detailed transaction leveldata that includes ticket characteristics and restrictions, carrier,estimated flight level load factors, date of issue, departure date,other hedonic factors affecting prices, whether the ticket was purchasedonline or offline, and the share of online purchases for the city-pair.Controlling for numerous observed ticket characteristics, as well ascarrier and route effects, the results show that online prices averageabout 13 percent less than offline prices. The analysis also shows thata ten percent increase in the online share of tickets sold on a routedecreases average prices by an additional 5 percent, with more of thiseffect coming in the form of lower offline prices. The paper also findsevidence that an increase in online shares decrease price dispersion.The paper also uses these unique data to investigate the effects of hubdominance and high route shares on pricing. Due to data limitationsprevious investigations of these issues could not control for importantticket characteristics, load factors, and time of purchase in measuringthe effects of concentration on price levels and dispersion. Ouranalysis controls for these factors while investigating the impact ofmarket concentration on price levels and dispersion.