COMPETITION AND PRICE DISPERSION IN THE UNITED-STATES AIRLINE INDUSTRY

We study dispersion in the prices an airline charges to different pass engers on the same route. This variation in fares is substantial: the expected absolute difference in fares between two passengers on a rout e is 36 percent of the airline's average ticket price. The pattern of observed price dispersion cannot easily be explained by cost differenc es alone. Dispersion increases on routes with more competition or lowe r flight density, consistent with discrimination based on customers' w illingness to switch to alternative airlines or flights. We argue that the data support models of price discrimination in monopolistically c ompetitive markets.