Abstract
This study examines the effects of airline baggage fees as a method for diverting high cost passengers to rival airlines that do not charge such fees. We show that the latter in turn must raise their fares, thereby weakening their competitive constraint on carriers with fees and permitting the latter actually to raise their fares. Our empirical evidence focuses on routes where legacy carriers with baggage fees compete with Southwest, which has never had such fees. Consistent with the above implications of the model, we find nontrivial cost and price increases for Southwest and corresponding nontrivial fare increases by legacy carriers on routes on which they overlap with Southwest. These results provide support for the theory of "raising rivals’ costs", this in airlines, but common in other settings where unbundled pricing shifts customers between firms.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Journal of the Economics of Business
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
