Incumbent Response to Entry by Low - Cost Carriers in the U . S . Airline Industry ∗ Kerry

This paper studies incumbent price response to entry by low-cost carriers in the U.S. airline industry. I find that legacy carrier incumbents decrease their mean airfare, 10th percentile airfare, and 90th percentile airfare following entry by a low-cost carrier. Airfares decrease by a larger percentage at the right tail of the incumbents’ price distribution than at the left tail, suggesting that increased competition from low-cost carrier entrants leads to lower price dispersion. JEL classifications: L93, L11 ∗I would like to thank Matt Lewis, Nancy Rose, Adam Shapiro, Jim Peck, Huanxing Yang, David Mills, and participants of the Southern Economic Association Conference and the International Industrial Organization Conference for their useful feedback. †Department of Economics, Loyola University Maryland, 4501 N Charles St, Baltimore, MD 21204, USA; E-mail: [email protected]