Switching Costs and Price Discrimination by European Frequent Flyer Programmes
(2015) NEKN01 20151Department of Economics
- Abstract
- This thesis presents the two hypotheses that airlines use their frequent flyer programmes (FFPs) to introduce switching costs to combat competition by increasing the percent discount of the value of the points their FFP members receive, and that they use their FFPs to support price discrimination by offering business travellers more value for their travel choices. Economic theory to support these hypotheses is offered and real life data is collected for a number of routes from five major European airlines. The percent discount and value received by frequent flyers is regressed on price, competition level, and other relevant variables to determine their predictive strength and interdependence. The results and following analysis confirm the... (More)
- This thesis presents the two hypotheses that airlines use their frequent flyer programmes (FFPs) to introduce switching costs to combat competition by increasing the percent discount of the value of the points their FFP members receive, and that they use their FFPs to support price discrimination by offering business travellers more value for their travel choices. Economic theory to support these hypotheses is offered and real life data is collected for a number of routes from five major European airlines. The percent discount and value received by frequent flyers is regressed on price, competition level, and other relevant variables to determine their predictive strength and interdependence. The results and following analysis confirm the hypothesis that airlines use their FFPs to support price discrimination since there is a strong connection between the price passengers pay and the value of the points they receive. The hypothesis that airlines use their FFPs to introduce switching costs when facing competition is only partially confirmed since only two airlines increase the percent discount they offer their FFP members when competition is high. The remaining three airlines instead lower the percent discount as they face increased competition. To accurately determine the reason for this difference, more detailed analysis is required. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/5469556
- author
- Jansson, Patrick LU
- supervisor
-
- Jerker Holm LU
- organization
- course
- NEKN01 20151
- year
- 2015
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- switching costs, price discrimination, frequent flyer programmes
- language
- English
- id
- 5469556
- date added to LUP
- 2015-06-30 10:55:33
- date last changed
- 2015-06-30 10:55:33
@misc{5469556, abstract = {{This thesis presents the two hypotheses that airlines use their frequent flyer programmes (FFPs) to introduce switching costs to combat competition by increasing the percent discount of the value of the points their FFP members receive, and that they use their FFPs to support price discrimination by offering business travellers more value for their travel choices. Economic theory to support these hypotheses is offered and real life data is collected for a number of routes from five major European airlines. The percent discount and value received by frequent flyers is regressed on price, competition level, and other relevant variables to determine their predictive strength and interdependence. The results and following analysis confirm the hypothesis that airlines use their FFPs to support price discrimination since there is a strong connection between the price passengers pay and the value of the points they receive. The hypothesis that airlines use their FFPs to introduce switching costs when facing competition is only partially confirmed since only two airlines increase the percent discount they offer their FFP members when competition is high. The remaining three airlines instead lower the percent discount as they face increased competition. To accurately determine the reason for this difference, more detailed analysis is required.}}, author = {{Jansson, Patrick}}, language = {{eng}}, note = {{Student Paper}}, title = {{Switching Costs and Price Discrimination by European Frequent Flyer Programmes}}, year = {{2015}}, }