Price Dispersion Over the Business Cycle: Evidence from the Airline Industry

This study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry. Performing a fixed-effects panel analysis on seventeen years of data covering two business cycles, we find that price dispersion is highly pro-cyclical. This effect is especially pronounced for legacy carriers relative to low-cost carriers. We show that our empirical result is consistent with firms' implementing second-degree price-discrimination tactics.