Abstract
COVID-19 has caused substantial disruptions to the airline industry. This paper analyzes the impact of the pandemic on price dispersion in airfares. The sample includes ticket information from the DB1B database between 2018Q1 and 2021Q4. The fixed-effect panel instrument variable (IV) estimation finds evidence of decreased price dispersion during COVID-19. These results are robust to alternative measures of dispersion and subsamples. Furthermore, the subsample analyes reveal that, as the infection rate rises, the dispersion decreases more in markets where competition is more intense. Specifically, dispersion is lower on routes with the presence of low-cost carriers (LCCs) than those exclusively served by legacy carriers and on short-haul routes (≤500 miles) than long-haul routes (>500 miles). My analysis adds to the literature by exploiting the impact of changes in market conditions (i.e., demand shocks triggered by the COVID-19 recession) on price and price dispersion using the latest data.
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