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Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry

Severin Borenstein
The RAND Journal of Economics
Vol. 20, No. 3 (Autumn, 1989), pp. 344-365
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/2555575
Page Count: 22
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Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry
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Abstract

This article estimates the importance of route and airport dominance in determining the degree of market power exercised by an airline. The results indicate that an airline's share of passengers on a route and at the endpoint airports significantly influences its ability to mark up price above cost. The high markups of a dominant airline, however, do not create much of an "umbrella" effect from which carriers with smaller operations in the same markets can benefit. The article suggests a number of possible explanations for this asymmetry.

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