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The Effect of Market Structure on the Empirical Distribution of Airline Fares

This paper extends the existing literature on the effect of market structure on price dispersion in airline fares by modeling the effect at the disaggregate ticket level. Whereas past studies rely on aggregate measures of price dispersion such as the gini coefficient or the standard deviation of fares, this paper estimates the entire empirical distribution of airline fares and documents how the shape of the distribution is determined by market structure. Specifically, I find that monopoly markets favor a wider distribution of fares with more mass in the tails while duopoly and competitive markets exhibit a tighter fare distribution. These findings indicate that the dispersion of airline fares may result from the efforts of airlines to practice second-degree price discrimination.