Pellerano Guzman, Jose (2013-12). Search Costs in Airline Markets. Doctoral Dissertation.
This paper recovers consumer search cost estimates in airline markets consistent with theoretical search models. We follow an empirical framework developed in the recent literature on the structural estimation of search models to retrieve information on consumer search costs using price information. A unique data set of airline fares coupled with detailed ticket characteristics allows us to utilize this framework. We work in this paper with non-refundable and restricted tickets. Results show that the magnitude of search costs borne by air travelers in our ticket group is economically important. Specifically, search cost means vary between 4.75% and 8.12% of the mean route fare across markets and can be as high as US$58 for certain consumers in our sample. Consistent with previous work in other markets, our estimates indicate that most consumers sample just a few prices before buying while a relative small fraction of consumers search intensively. Results suggest that consumer search cost plays an important role in explaining part of the price dispersion observed in the airline industry.