Tuesday, May 20, 2008

Can price discrimination survive competition?


Nice article by two economists from the Boston Fed shows that when Midway Air (green dots) and later Southwest Air (chartreuse dots) entered the Philly<-->Chicago route, United Airlines price dispersion collapsed. This is consistent with the theory that price discrimination cannot survive in a competitive market. Curiously, ATA entry (blue dots) had a much smaller effect on United prices.

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