We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a nonmonotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but with less price dispersion in competitive markets—an inverse-U relationship. Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature.

This content is only available as a PDF.
You do not currently have access to this content.