Research Studies

A study was conducted into the prices of domestic United States airline market prices. The hypothesis for this particular article is that airlines can increase the prices of air fare at any given time without notice or a reason to do so. Airlines increase the price of air fare quite frequently and many consumers feel the increase in prices is unfair and unjust. The study was conducted to figure out exactly why the airlines increase their prices.

The study found several factors that influence increases in air fare prices. “First, the lower variance in the prices of "everyday low price" (EDLP) firms serves to reduce the market-level dispersion in prices when such firms are present.” Moreover, the price variance of non-EDLP firms in these markets is also lower than in those markets in which EDLP competitors are absent. Second, we also find that dispersion in offered prices increases closer to the departure date, which is consistent with theoretical assertion that price dispersion increases with reservation prices (Chellappa, Sin, and Siddarth, 2011).

As one can see, the airlines do not increase prices for no reason at all, or just on whim. They have reasons, you and I may not understand those reasons, but none the less, they are reasons. The study also found that the airlines receive numerous complaints from their customers because prices have increased. Airlines say they simply inform their customers that the price increase was inevitable and necessary for the airline to stay in business. If the customer retaliates by saying that they will just switch airlines, the airlines say that all air fares have increased. Once one airline raises their prices, many other airlines follow suit.

Another reason that airlines could (and usually do) increase their prices is because of vendor prices increasing and the cost of advertisements. Vendors supply the airlines with items such as food, drinks, condiments, and toiletries. When a vendor supplying these items increases their...