When do Airlines Price Match? A Review of Factors Affecting Parallel Pricing

Abstract


 
 
 Parallel pricing refers to the practice of firms making independent pricing decisions to match each other’ prices. This paper provides plausible economic intuitions about the market characteristics that affect the emergence and persistence of airline parallel pricing behavior by reviewing and synthesizing the relevant factors identified in the industrial organization literature as influencing cooperative outcomes or tacit collusion. One of the key findings of this paper is that the combination of high price transparency, quick price response, and repeated interactions among competing airlines can make parallel pricing as a self-evident outcome, even in the presence of information asymmetries, cost discrepancies, variations in capacity and service quality, as well as fierce market competition. Another finding is that as personalized pricing becomes more prevalent, the likelihood of success of parallel pricing may decrease. It remains unclear what other forms of cooperative outcomes will emerge as the industry continues to adapt to changing technological and market landscapes. With these findings, this paper contributes to the groundwork for developing a comprehensive model of parallel pricing in the airline industry.