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Nonlinear Pricing Strategies and Market Concentration

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Nonlinear Pricing Strategies and Market Concentration
NONLINEAR PRICING STRATEGIES AND MARKET CONCENTRATION IN THE AIRLINE INDUSTRY

A Dissertation by MANUEL A. HERNANDEZ GARCIA

Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY

August 2009

Major Subject: Economics

UMI Number: 3384249

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NONLINEAR PRICING STRATEGIES AND MARKET CONCENTRATION IN THE AIRLINE INDUSTRY

A Dissertation by MANUEL A. HERNANDEZ GARCIA

Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY

Approved by: Chair of Committee, Steven N. Wiggins Committee Members, Li Gan James Griffin Steven L. Puller Head of Department, Larry Oliver

August 2009 Major Subject: Economics

iii

ABSTRACT Nonlinear Pricing Strategies and Market Concentration in the Airline Industry. (August 2009) Manuel A. Hernandez Garcia, B.A., Universidad del Pacifico, Peru Chair of Advisory Committee: Dr. Steven N. Wiggins This dissertation investigates the effect of market concentration on nonlinear pricing strategies in the airline industry. The study develops a theoretical nonlinear pricing model with both discrete product and consumer types to derive testable implications about the impact of market concentration on the structure of relative prices within a menu of prices. The analysis then uses a



References: 37 ——— “Equilibrium Price Dispersion Under Demand Uncertainty: The Roles of Costly Capacity and Market Structure,” RAND Journal of Economics 30:4 (1999b), 632–660 38 Maskin, Eric, and John Riley, “Monopoly with Incomplete Information,” RAND Journal of Economics 15:2 (1984), 171–196 39 Stavins, Joanna, “Price Discrimination in the Airline Market: The Effect of Market Concentration,” Review of Economics and Statistics 83:1 (2001), 200–202 2 δ 2 qiL 2 This section follows Piga and Poyago-Theotoky (2005)

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