Low-cost carriers (LCCs) have transformed the US airline industry. They are now much larger and have moved into more direct competition with legacy carriers. This paper re-examines airline fare determination in this transformed industry. It finds that LCCs have a much larger fare impact than do legacies, but that their fare-reducing effect diminishes as they become dominant on a route. It also finds that legacy carriers primarily affect each others’ prices, whereas LCCs have a significant impact on pricing by both other LCCs and legacies. These and other results suggest a new and more nuanced role for LCCs in the domestic airline industry.
Review of Industrial Organization – Springer Journals
Published: Mar 10, 2016
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