Product Unbundling in the Travel Industry: The Economics of Airline Bag Fees

Product Unbundling in the Travel Industry: The Economics of Airline Bag Fees

This paper provides theory and evidence on airline bag fees, offering insights into a real‐world case of product unbundling. The theory predicts that an airline's fares should fall when it introduces a bag fee, but that the full‐trip price (the bag fee plus the new fare) could either rise or fa...

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Bibliographic Details
Published in:Journal of economics & management strategy Vol. 24; no. 3; pp. 457 - 484
Main Authors: Brueckner, Jan K., Lee, Darin N., Picard, Pierre M., Singer, Ethan
Format: Journal Article
Language:English
Published: Cambridge Blackwell Publishing Ltd 01-09-2015
Wiley Subscription Services, Inc
Subjects:
Air fares
Airlines
Economic analysis
Fees
Fees & charges
Luggage
Management science
Market strategy
Studies
Transport
Travel
Travel industry
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Summary:This paper provides theory and evidence on airline bag fees, offering insights into a real‐world case of product unbundling. The theory predicts that an airline's fares should fall when it introduces a bag fee, but that the full‐trip price (the bag fee plus the new fare) could either rise or fall. The empirical evidence presented in the paper provides strong confirmation of the first prediction. The data also suggest that the average fare falls by less than the bag fee itself so that the full price of a trip rises for passengers who choose to check bags.
Bibliography:istex:82C8618657F1D0F5FDFDFE90CC6F7A932D5CECBE
ark:/67375/WNG-89TKHSVW-0
ArticleID:JEMS12106
A portion of the empirical work in this paper is based on analysis contained in an expert report by Darin Lee, who was retained by Delta Air Lines in connection with a class action litigation filed in U.S. Federal Court. However, the opinions expressed are entirely ours. We thank an associate editor and a number of referees for helpful comments.
ObjectType-Article-1
SourceType-Scholarly Journals-1
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ISSN:1058-6407
1530-9134
DOI:10.1111/jems.12106