Dr. Ambarish Chandra, University of Toronto

Revisiting the Relationship between Competition and Price Discrimination in the Airline Industry

Abstract We revisit the relationship between competition and price discrimination in the airline industry. Building on early theoretical work, we develop a sim- ple model showing that, if consumers dier in terms of both their underlying willingness-to-pay to travel and their degree of brand loyalty, competition may increase fare dierences between some types of travellers while decreasing them between others. Using a novel source of data on airfares that distinguishes tickets sold to dierent types of travellers, we show that competition increases cross-cabin fare dierentials but decreases fare dierentials between most Dis- count Coach passengers, thus reconciling con icting ndings from earlier re-search.