Airlines' cooperation in the US domestic market: Measuring the evolution of price gaps

Abstract

Cooperation agreements among airlines are a widespread phenomenon in the air travel industry. This study focuses on the effect of cooperation on air ticket prices for the US domestic market. Our main goal is to discover how price differentials of allied and codeshared products evolved over the years, based on an empirical model of average fares with market fixed effects with data from 2003 to 2019. Our evidence highlights a gradual change in fare gap patterns over the past two decades. Specifically, cooperation drastically decreased in the US domestic markets between 2009 and 2019. We also show that price differentials between cooperated and noncooperated products depend on the considered period, the level of cooperation, and the type of route, casting doubt on the pricing benefits of cooperation to consumers.