Pricing and Market Characteristics: A Case Study of Airlines on the Denver – Los Angeles Route

Abstract

This study examines the factors that determine airfare pricing on the route from Denver (DEN) to Los Angeles (LAX), including the return trip. This is a pair of cities with distinct economic backgrounds. We analyze a dynamic panel dataset spanning 22 years from 2002 to 2023 to examine how various firm-level, industry-level, and macroeconomic indicators affect airfare. The country's major carriers, Delta Airlines and Southwest Airlines, employ a unique pricing strategy that enhances fare competitiveness on this route, as evidenced by the influence of HHI (i.e., Herfindahl-Hirschman Index). Although this market is an oligopoly and conventional wisdom suggests that higher concentration would lead to higher prices, we observe this effect only partially. We also observe evidence of unique characteristics of airlines.