An empirical analysis of online price dispersion in the Italian airline industry

Firms operating in the electronic marketplace set and adjust prices toaffect demand and profitability. In service markets, such as airline markets,different prices are commonly offered by diverse firms to accommodate to avariety of market segments having particular sets of consumer attitudes. Thisvariation in prices is the price dispersion and is based on market distinctivenessderiving from customer heterogeneity as well as the peculiar competition in thespecific market arena. In this paper we use a panel dataset from the Italianairline market to investigate the role of competition and different onlinechannels in the emergence of price dispersion. Specifically, we examine theunclear role of competition in price dispersion with novel data collected fromdifferent online channels, namely direct and Online Travel Agency (OTA)channels. We find that price dispersion is higher in routes where competition ishigher even in presence of only one segment, namely the business segment.Our results also show that price dispersion significantly differs across differenttypes of online channels.