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

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.